“We may see more disagreement among Fed members this time, partly due to the government shutdown,” Williamson told Mortgage Professional America. “In September, all but one supported the cut—with one favoring an even larger cut—reflecting broad consensus for a shift toward a more neutral policy stance. But, with no fresh employment data because of the shutdown, the Fed is operating with limited visibility.
“That uncertainty could lead some members to argue for holding rates steady, while others push for a more aggressive cut, despite the lack of data. With no November meeting, markets expect a cautious cut in October, which may serve as a hedge against uncertainty that buys time for clearer signals to emerge.”
Mortgage rate impact
Of course, the fed funds rate and mortgage rates are not always perfectly correlated. However, in addition to announcing a rate cut, the Fed may also make official something Fed chair Jerome Powell mentioned earlier this month.
The Fed is expected to announce the end of its balance sheet runoff sometime soon. Economists believe that could help push mortgage rates lower. Williamson agrees with that sentiment.
“If the Fed stops runoff and resumes reinvesting in Treasuries and mortgage-backed securities (MBS), it could influence mortgage rates by increasing demand for government debt,” he said. “That added demand may push down yields on instruments like the 10-year Treasury, which mortgage rates loosely track. As a result, mortgage rates could face modest downward pressure.”