Federal Reserve Chair has signaled that the central bank expects to deliver two additional quarter-point interest rate reductions before year-end, sending Treasury yields lower and fueling optimism in the mortgage market. The updated dot plot released following the April FOMC meeting shows a median funds rate projection of 4.25% by December, down from the current target range of 4.75% to 5.00%.
Mortgage market participants reacted swiftly, with the 10-year Treasury yield falling 8 basis points to 3.88% in the hours following the announcement. Mortgage rate forecasters have revised their year-end projections downward, with the Mortgage Bankers Association now expecting the 30-year fixed rate to average 5.6% in the fourth quarter, a level that would significantly expand the pool of qualified and motivated homebuyers.
Not all economists share the optimism. Several Fed watchers note that the projected rate path is contingent on continued progress on inflation, which remains above the 2% target at 2.4%. Any unexpected uptick in consumer prices or disruption in global supply chains could force the Fed to pause or even reverse course, as happened in 2024 when rate cut expectations were repeatedly pushed back. For now, however, the direction of travel appears favorable for borrowers and the housing market alike.
