Hey folks, hope everyone is doing well as the holidays approach. I wanted to share a quick update on the state of interest rates. I know, thrilling topic but for those sticking with me, there are a few important things to know.
So, why are rates still stubbornly high? First, inflation. The party isn’t over yet, it’s like that guest who just won’t leave. The Fed’s response has been to keep the punch bowl out of reach, even though they’ve started to reduce the federal funds rate. They’ve made it clear they won’t let us enjoy lower mortgage rates until inflation “calls it a night.” Their target is around 2%, but we’re still sitting at roughly 3%, and that’s been consistent for a while.
Second, the economy still looks strong at least on paper. People are spending, wages are up slightly, and while employers aren’t firing, they’re not hiring much either. With the holidays coming, consumers will keep buying, and as long as that continues, the Fed will likely stay conservative with rate cuts.
Third, the government’s debt plays a big role. Both parties spend more than they take in, and to keep things running, the government constantly issues Treasury bills, notes, and bonds essentially IOUs. When there’s too much supply of these, prices drop and yields (interest rates) rise. That directly impacts mortgage rates, keeping them elevated. It’s one of those underreported but major factors at play.
Then there’s the government shutdown situation. Even if it resolves quickly, the ripple effects linger. It takes time for everything to reboot, much like waiting for your computer to restart after a big update. Markets dislike uncertainty, and right now, there’s plenty of it.
Finally, the Fed itself is divided, which adds even more volatility. Chair Jerome Powell recently said that a rate cut at the December meeting is “far from a foregone conclusion,” which spooked markets. Chicago Fed President Austan Goolsbee added that he’s “not decided” and still concerned about inflation. Meanwhile, Fed Governor Lisa Cook warned that keeping rates too high could hurt the labor market, but cutting too soon could let inflation expectations become “unanchored.” It’s a tightrope walk between jobs, inflation, and money supply.
In short, with inflation still lingering, the economy showing mixed signals, persistent government debt, and uncertainty within the Fed, rates will likely stay grounded for now. When we do see brief dips, think of them as rare opportunities those “green shoots” moments worth seizing.
Thanks for sticking with me through this update. As always, if you have questions or want to talk about how this impacts your mortgage options, don’t hesitate to reach out. I’m never too busy to help. Wishing you a fantastic holiday season!
