Investors who fund most mortgages have already priced in several rate cuts, so further declines could depend on what next week’s “dot plot” says about expectations for the pace of future cuts.
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The Federal Reserve is widely expected to start cutting rates next week, and new data that adds some certainty to arguments that the economy is slowing down could make policymakers more inclined start out with a bold move.
Stocks posted broad-based gains this week as investors adjusted to the possibility that the Fed will cut short-term rates by 50 basis-points on Sept. 18, rather than dipping its toe into the water with a more cautious 25-basis point cut. A basis point is one-hundredth of a percentage point.
But investors who fund most mortgages have already priced in several Fed rate cuts this year and next, and whether mortgage rates continue to fall could depend on the release of next week’s “dot plot” showing policymakers’ expectations for the pace of future rate cuts.
The CME FedWatch tool, which tracks futures markets to gauge investor sentiment of future Fed moves, on Friday put the odds of a 50 basis-point cut on Sept. 18 at 45 percent, up from 15 percent on Wednesday.
The shifting bets in futures markets followed Thursday’s release of the Producer Price Index (PPI), which tracks the price of wholesale goods and services, and weekly initial unemployment claims.
Both of Thursday’s data releases supported the thesis that the steady decline in inflation seen in recent months is not transitory — contrary to a surprisingly large increase in prices in August, revealed in the latest Consumer Price Index (CPI) report.
Wednesday’s…