For the fifth meeting in a row, the Federal Reserve’s Federal Open Market Committee (FOMC) made the call that their best course of action was to do nothing with interest rates, a trend that has developed as the Committee chose to hold rates steady at 5.50% at their last four meetings as well.
The most aggressive series of rate hikes in history ended in June when the committee held off on raising rates due to a litany of positive factors which consisted of 11 straight rate hikes over 15 months. Since the post-pandemic rate hikes began, the FOMC raised rates in March 2022 (+25 points), May 2022 (+50 points), June 2022 (+75 points), August 2022 (+75 points), September (+75 points), November 2022 (+75 points), December 2022 (+50 points), February 2023 (+50 points), March 2023 (+25 points), May 2023 (+25 points), June 2023 (+0 points), July (+25 points), September (+0 points), November (+0 points), December (+0 points), January 2024 (+0 points) and March (+0 points). This is equivalent to a rise of 5.00 percentage points in under two years.
This string of rate hikes that have occurred since the pandemic has been necessary according to the FOMC to tamp down inflation, which reached a high of 9.1% in June 2022. While inflation has eased, it is still above the committee’s target rate of 2%. However, the Fed now predicts that inflation will not come down to their 2% target until sometime in 2026.
The target rate now stands at 5.25-5.50%. The committee next convenes for its third meeting of 2024 on April 30-May 1 2024.
In a prepared statement at the end of the meeting, the FOMC said:
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50% percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
The Committee is strongly committed to returning inflation to its 2% objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Commentary on the news from industry leaders
“Investors will be looking for clues from Chairman Jerome Powell and his colleagues this week regarding the timing and pace of anticipated interest rate cuts,” said Bankrate Senior Industry Analyst Ted Rossman. “The press conference is always an eagerly awaited event, and the FOMC will publish a Summary of Economic Projections for the first time since last December, so Fed-watchers will have a lot to digest.”
“The Fed’s most recent Summary of Economic Projections (from last December) indicated a median estimate of three quarter-point rate cuts this year. At the time, investors were pricing in six quarter-point cuts, according to the CME FedWatch Tool,” Rossman continued. “The gap has narrowed considerably. Right now, investors’ best guess is that the federal funds rate will fall 75 basis points between now and the end of the year, so the market has come around to the Fed’s December projections. But have those projections changed? We’ll find out on Wednesday. We’re hearing rumblings about rates staying higher for longer. At present, the June meeting is viewed as the most likely date for the initial cut.”
“From a consumer standpoint, rate cuts are more likely to bring relief to the housing market than other financial products,” Rossman concluded. “For example, if the average credit card rate falls a percentage point from its current record-high of 20.75%, most cardholders would barely notice. But if the average 30-year fixed mortgage rate falls to around 6%, which is possible by the end of the year, that could open up more activity in the housing market. That figure peaked just over 8% last fall. Mortgage rates tend to move in advance of Fed actions.”
Realtor.com Chief Economist Danielle Hale also reacted to the news:
“The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, voted to keep the short-term policy rate steady, once again, at a range of 5.25% to 5.5%. The Fed has kept rates steady since its July 2023 rate hike, which is widely expected to be the last hike in a tightening cycle that started in March 2022 when the Fed Funds rate was increased above 0% for the first time since March 2020.
“The bigger news in today’s Fed meeting is from the update to the Summary of Economic Projections–a roundup of the individual members’ forecasts for the next few years ahead. Last updated in December, the projections showed that members expected slowing economic growth in 2024 and 75 basis points of easing by the end of 2024. While the projections for the policy rate at the end of 2024 have not changed, policy makers do expect fewer rate cuts in 2025 and 2026 than they anticipated just 3 months ago–in other words, ‘higher for longer’. This could be in response to upticks in the near-term outlook for overall PCE and Core PCE inflation and a moderately improved outlook for economic growth and the unemployment rate. Nevertheless, the Fed reiterated its commitment to a target of 2% inflation three times in its statement, and Chair Powell is likely to reinforce this target in his comments as well. “
“The economy has remained remarkably resilient in the face of 525 basis points of tightening. The unemployment rate continues to fall below 4%, companies continue to expand payrolls, and workers are seeing real wage growth as inflation eases,” Hale continued. “Despite recent upticks, the big picture trend in inflation has been toward the Fed’s 2% target. The Fed’s current policy stance is restrictive and even after several rate cuts, policy would continue to be restrictive, giving the Fed some leeway.”
“After easing sharply at the end of 2023, mortgage rates have hovered in a narrower 6.5% to 7% band so far in 2024. The widely quoted Freddie Mac mortgage rate index, which fell sharply to 6.67% in the week after the December FOMC meeting, sat at 6.69% before the January meeting, and 6.74% just before today’s meeting. In order to see mortgage rates drop more significantly, the market and Fed will need to see more evidence that inflation is slowing and that the economy is on a sustainable path, but the data has been relatively mixed recently. I don’t expect we’ll see much of a market reaction to the Fed meeting this week because the Fed is waiting for the incoming data, just like the rest of us. “
For home buyers and sellers, it means that the housing affordability improvements anticipated in Realtor.com’s 2024 Housing Forecast as mortgage rates drop will unfold slowly. In this environment, the mortgage rate lock-in is likely to be an important constraint on potential home sellers, and new construction will continue to be a vital source of housing options for buyers,” Hale concluded. “This also means that options such as assumable mortgages–which allow a seller to let a buyer takeover an existing mortgage, including the existing (likely lower) rate–can be a valuable hack for buyers who can find them. A small share of the total outstanding mortgage pool is eligible for assumption, and the share of sellers who are aware of this feature and advertising it on their listings is even smaller, but in some of the markets where sellers are most-likely to advertise this feature, Realtor.com research suggests that buyers can find mortgage assumption advertised on 1-3% of active homes for sale.”
MBA SVP and Chief Economist Mike Fratantoni’s commentary following the Federal Reserve’s FOMC statement released Wednesday afternoon on monetary policy and the economy:
“The FOMC held rates unchanged at its March meeting and continued to signal its next move will be a rate cut. The only question is when.
“Their new projections indicate three cuts for 2024, unchanged from their December projections for 2024, but with one less rate cut expected in 2025. We are forecasting that the first rate cut will be in June, and a total of three rate cuts this year.
“The committee did not indicate any changes to the pace of quantitative tightening. We continue to expect longer-term rates, including mortgage rates, to decline gradually over the course of this year.”
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller
