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The Fed is doing it big: cutting mortgage rates and boosting the housing market

Vaseline September 18, 2024

Every weekday, the CNBC Investing Club with Jim Cramer publishes the Homestretch — a timely afternoon update, just in time for the final hour of trading on Wall Street. Markets: The Federal Reserve cut the fed funds overnight bank lending rate by 50 basis points to a range of between 4.75% and 5% on Wednesday afternoon. The Fed had been widely expected to cut short-term rates, but the 25 basis point versus 50 basis point debate raged leading up to the announcement. It was the first real toss-up in a long time. Ultimately, the Fed opted for a more “risk management” approach, arguing that it could hurt the labor market as inflation eases toward its 2% target. Market reaction to the announcement was quite volatile. Stocks initially rallied to record highs, but then pared those gains. In his post-meeting press conference, Fed Chairman Jerome Powell said unemployment had risen but was still low and that the economy was continuing to grow. He added that inflation has eased significantly but is still above target. Dot plots: Looking at the dot plots in the FOMC’s Summary of Economic Projections, 10 members estimate another 50 basis points of cuts, likely 25 over the next two meetings, by the end of the year. That would put the fed funds rate in a range of between 4.25% and 4.5%. Looking ahead to the end of 2025, the dot plots suggest another 100 basis points, or 1 percentage point, of rate cuts with another 50 basis points of cuts in 2026. We don’t like to read too much into the dot plots, because this Fed has repeatedly said it will rely on data, not a preset plan. Mortgage Rates: We talked last week at our September monthly meeting about how the housing market could start to pick up as mortgage rates fall from their cyclical highs to somewhere in the 5% to 6.5% range. It’s a big reason why we recently initiated a position in Home Depot and held Stanley Black & Decker. This thesis is starting to play out just as we thought, as interest rates hit a two-year low. Earlier on Wednesday, the Mortgage Banks Association’s total mortgage application volume rose 14.2% from the previous week, and applications to refinance a mortgage rose 24% from the previous week. One thing to keep in mind is that these numbers are coming from very low levels. What the data does show, however, is how sensitive activity is to any drop in mortgage rates. The 10-year Treasury yield was slightly higher following the Fed’s announcement. The shorter end of the yield curve fell. The S&P Homebuilders ETF (XHB) jumped to a new all-time high on Wednesday. Up Next: No major gains are expected after Wednesday’s close. However, Jim Cramer’s interview with Advanced Micro Devices CEO Lisa Su will be on “Mad Money.” We expect to hear more about AMD’s strategy for artificial intelligence GPUs, the rationale behind its two recent acquisitions and the latest news from the AI PC market. Two restaurant chains are reporting before Thursday’s opening bell: Oliver Garden and LongHorn Steakhouse, parent companies of Darden Restaurants and Cracker Barrel. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim executes a trade. Jim waits 45 minutes after a trade alert is issued before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Every weekday, the CNBC Investing Club with Jim Cramer publishes the Homestretch: a useful afternoon update, just in time for the final hour of trading on Wall Street.

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The Fed is doing it big: cutting mortgage rates and boosting the housing market

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The Fed is doing it big: cutting mortgage rates and boosting the housing market

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