Powell’s Jackson Hole comments put mortgage rates on downward path to 6%, economists say

Federal Reserve Chair Jerome Powell on Friday signaled a willingness to cut interest rates, which will likely push mortgage rates down in the near term, economists say.

In a speech from Jackson Hole, Wyo., Powell said that the “time has come” to begin reducing interest rates.

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“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” he said.

Economists in the real-estate industry took those words as a signal that the Fed is going to cut rates. Investors have already priced in rate cuts, so it’s unlikely that mortgage rates will plunge in response in the near term.

Still, “the immediate reaction to the speech resulted in some reductions in longer-term Treasuries and secondary mortgage market yields, so mortgage rates may be somewhat lower in the near term,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in a statement.

“Our forecast continues to look for mortgage rates to drift down closer to 6% over the next 12 months or so,” he said.

The 30-year mortgage rate averaged 6.46% as of Aug. 22, according to data released by Freddie Mac on Thursday, ahead of Powell’s speech. That was down from 7.23% in the week prior.

On Friday, Mortgage News Daily, which runs a daily survey of lenders, also had the 30-year rate averaging 6.46% and the 15-year rate averaging 5.99%. Both were down slightly.

Mortgage rates are not directly influenced by the Fed’s benchmark  interest rate. Instead, mortgage rates are influenced by the direction of the 10-year Treasury note BX:TMUBMUSD10Y. If the 10-year Treasury yield falls, rates are likely to follow suit. The 10-year note was down slightly on Friday, after Powell’s speech.

Nonetheless, his comments will likely influence the mortgage market, Ralph McLaughlin, a senior economist at Realtor.com, told MarketWatch.

“Chairman Powell has made it very clear that the [Federal Open Market Committee] now sees that it is time for a shift in monetary policy,” McLaughlin said.

“The market is continuing to price in three rate cuts by the end of the year, and we should expect the first to be a 25-basis-point cut in September, [but] since the price cuts are already priced in, we should expect mortgage rates to remain on a relatively stable but slow [downward] trajectory through the end of the year and into next,” he said.

The company expects the average 30-year mortgage rate to settle at 6.3% by the end of the year.

Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch publisher Dow Jones is also a subsidiary of News Corp.

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