FOMC Commentary from MBA's Mike Fratantoni

The following is MBA SVP and Chief Economist Mike Fratantoni’s commentary following the Federal Reserve’s FOMC statement released this afternoon on monetary policy and the economy:

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“The FOMC lowered rates by 50 basis points at its September meeting and signaled that this is the first cut in a series that should bring rates down by about 2 percentage points by the end of 2025. Market participants had been divided about how much the Fed would cut at its meeting today, so this decision is likely to spur some rate volatility as investors adjust to this expected path for monetary policy.  Governor Bowman dissented from this decision, preferring a 25-basis-point cut, but it seems that the rest of the Committee is more worried about the weakening job market.

"The FOMC projections highlighted that inflation is returning to target more quickly than the Committee had expected in June and that the unemployment rate has moved higher and is likely to stay higher than expected. While not likely to be in a recession, the U.S. economy is likely in for a period of slower economic growth. It is also important to note that the FOMC’s estimates of the neutral fed funds rates keeps moving up, and that the committee members see a range of outcomes, from 2.5-3.5% as consistent with neutral in the long run. 

"The Fed’s MBS holdings have continued to gradually decline with QT. While there no changes to the pace of QT with this statement, faster refinances will result in the MBS portfolio paying off more quickly as prepayments have been well below the cap since the beginning of QT.

“Mortgage rates likely had this cut – and this expected rate path – priced in, and lower mortgage rates, now close to 6%, have resulted in much more refinance and some additional purchase activity in recent weeks. We do expect that if mortgage rates remain near these levels, it will support a stronger than typical fall housing market and suggest that next spring could see a real rebound in activity.”