ADDS MBA CHIEF ECONOMIST'S COMMENTS
By Ovunc Kutlu
ISTANBUL (AA) - The US Federal Reserve lowered the federal funds rate by 50 basis points Wednesday to a target range of 4.75%-5.0%, starting its monetary easing in an aggressive way.
The move marked the first rate cut by the central bank in more than four years, since the beginning of the coronavirus pandemic.
A total of 11 members of the Federal Open Market Committee (FOMC) voted in favor of the decision, while only one member, Michelle W. Bowman, dissented, advocating for a smaller 25 basis point reduction.
"Job gains have slowed, and the unemployment rate has moved up but remains low," the FOMC wrote in its statement. "Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated."
The FOMC said it has gained "greater confidence" that inflation is moving sustainably toward its 2% objective and added that the risks to achieving its employment and inflation goals are roughly in balance.
Except for the emergency rate cuts during the start of the pandemic, the last time the Fed delivered a 50-basis-point rate cut was during the global financial crisis in 2008.
- 'Economy likely in period of slower growth'
Mike Fratantoni, the Mortgage Bankers Association's (MBA) chief economist, said the FOMC signaled that this is the first cut in a series that should bring interest 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," he said in a statement.
Fratantoni said the US economy is likely in for a period of slower economic growth, but it is not likely to be in a recession.
"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," he added.
Fratantoni said the MBA expects that if mortgage rates remain near these levels, it will support a stronger than typical housing market during the fall season and suggest that next spring could see a real rebound in activity.
Mortgage applications in the US rose further for the week ending Sept. 13 as rates declined for the seventh consecutive week to their lowest level in two years, according to an MBA report released earlier Wednesday.