September 16, 2025
The Federal Reserve Board’s Open Market Committee is meeting this week. Their meeting takes place one week after the most recent inflation report was released showing that consumer prices continue to rise higher than the Fed’s targets, as expected. This report only served to increase speculation regarding what the Fed might do. This leads to the first most obvious question – will the Fed lower their benchmark interest rate? It has been about two months from the last Fed meeting and there have been so many events preceding this decision that we have lost count – including sobering employment news, Chairman Powell’s Jackson Hole speech and the continued pressure from the Administration which included the “contested” firing of a Fed board member. At this juncture, the markets seem to expect a rate decrease from the Fed.
The second question leads from the first. If the Fed lowers interest rates, will they lower their benchmark interest rate by 0.25% or 0.50%? With so much speculation, a 0.25% rate cut would not be seen as a surprise by any means, therefore the reaction of the markets could be fairly subdued. On the other hand, a 0.50% reduction would truly be a surprise, and the markets’ reaction could potentially be quite robust. Mind you we are not predicting a 0.50% move, just pointing out that there is a possibility and it would lead to the further possibility for fireworks.
The final question would be germane with either rate decrease but would be more interesting with the larger cut. The question is – if the Fed lowers interest rates, how will long-term interest rates such as mortgage rates react? During these times, we always remind our readers that the Fed’s benchmark interest rate is a very short-term rate. Long-term rates don’t always react in tandem with the Fed’s actions. Why? Many times, long-term rates react in anticipation of the Fed’s actions. For example, mortgage rates have already fallen more than 0.25% during the previous weeks. Secondly, if the Fed lowers rates while inflation is rising, the move could have an adverse effect on long-term rates. This is why the inflation reports released last week were so important to note before the Fed met. It is also why the Fed statement accompanying any action could additionally affect market reaction. This could be a very interesting week.
Source: Origination Pro
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