Homebuyers and borrowers of all kinds may soon receive relief. Federal Reserve Chairman Jerome Powell indicated Tuesday that the Fed probably will reduce its benchmark interest rate two more times this year, possibly lowering the cost of borrowing for mortgages, auto loans, and business loans.
Why the Fed may cut rates
Powell also testified in Philadelphia, stating that a deceleration in the hiring speed is a growing danger to the US economy. As much as the current federal government shutdown has delayed economic reports, he said the employment and inflation outlooks are little changed after the Fed cut rates for the first time this year in September.
Where they predict two more rate cuts this year and one in 2026. The reduced rates lower the expense of borrowing cash, which can facilitate households buying houses or vehicles and firms financing growth.
“Upside risks to jobs have shifted our assessment of the balance of risks,” Powell said. And while tariffs have pushed the Fed’s best inflation gauge to 2.9%, there are no other broad pressures keeping prices at high levels.
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Markets expect action
Economists say that Powell’s testimony strongly points to a rate cut in the Fed’s next meeting on October 28-29.
“While there was little doubt that the Fed was biased toward cutting rates at its next meeting, today’s statement was emphatic support for that position,” JPMorgan Chase Chief U.S. economist Michael Feroli said.
Powell also hinted that the Fed could stop trimming its $6.6 trillion balance sheet, which has gradually been reducing its holdings of Treasury and mortgage-backed securities. Stopping or scaling back that process could lower borrowing costs modestly in the long run.
Supporting previous fed actions
Powell employed some of his testimony to describe the Fed’s purchases of long-term Treasury notes and mortgage-backed securities it made during the pandemic. The moves were designed to reduce long-term interest rates and support the economy.
Critics, including Treasury Secretary Scott Bessent, grumbled the purchases helped increase inequality by pushing up the stock market without doing much for the rest of the economy. Powell justified that while stopping purchases earlier would have helped some, it would not have changed the fundamental direction of the economy. The purchases also aimed to prevent a collapse of the market that would have pushed interest rates much higher.
Interest on bank reserves
Powell addressed a bipartisan Senate move to ban the Fed from paying interest on reserves held at the central bank by banks. The measure was voted down 83-14 but was supported by some cross-party members. Powell warned that without paying interest on reserves, the Fed won’t be able to manage rates, which are key to holding down inflation and to inducing or discouraging borrowing.
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What this means for home buyers
For homebuyers, a lower Fed rate generally translates to lower mortgage rates. If the Fed reduces rates in late October as predicted, the cost of borrowing for new mortgages could decrease, which would make houses more affordable.
But Powell’s restraint suggests the Fed is watching the job market and inflation very carefully, so any rate cuts may be gradual. However, the signal alone is a welcome sign for anyone who is soon to buy a home, lease a car, or take on a business loan next month.
