Fed Cuts 25 Basis Points; What's Next Is Unclear

"On Dec. 10, the Federal Reserve voted to lower the federal funds rate by 25 basis points. A basis point is one one-hundredth of a percentage point. Mortgage lenders had been expecting a cut, and mortgage rates had fallen in the weeks ahead of the meeting. This move was largely predicted by analysts, despite tensions among central bankers. Still, the path to cutting was not unanimous or obvious."

"Mortgage rates already fell ahead of this December meeting, so they won't fall again just because of today's decision. The Fed doesn't set mortgage rates, but it does set the federal funds rate, which banks pay to borrow from each other. When the federal funds rate gets reduced, it can lower lenders' borrowing costs, so mortgage rates often go down when a cut is expected."

"One reason for these divisions is the lack of recent federal data, which creates a murkier view of the economy. The Consumer Price Index and jobs report were both canceled for October, and November's data isn't scheduled for release until next week. This means the most recent federal employment and inflation data available to the central bankers was from September, making the Fed's decision far trickier than normal."

On Dec. 10, the Federal Reserve cut the federal funds rate by 25 basis points, a basis point equaling one one-hundredth of a percentage point. Mortgage lenders had anticipated the cut, and mortgage rates declined in the weeks before the meeting. Fed policymakers were divided, with some, including New York Fed President John C. Williams, supporting a cut and others, like Chicago Fed President Austan Goolsbee, expressing inflation concerns. The lack of recent federal CPI and jobs data — October reports were canceled and November releases scheduled for mid-December — heightened uncertainty. Upcoming November employment and CPI reports will influence expectations for future cuts and mortgage-rate direction.

Read at SFGATE