With inflation stagnant from last month and consumer goods up 3.3% according to the latest CPI, the Federal Reserve’s Federal Open Market Committee again made the choice (for the seventh time) to leave the nominal interest rate unchanged, keeping it at a 23 year high of 5.50%.
At the beginning of the year, the FOMC predicted three interest rate cuts, but with four meetings left before the end of the year—and two meetings before the November election—the chances of that happening are bleak, with the FOMC now only predicting only one cut before the end of the year.
The most aggressive series of rate hikes in history ended in July 2023 when the committee held off on raising rates due to a litany of 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), March (+0 points), May (+0 points), and June (+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 fifth meeting of 2024 on July 30-31.
Commentary from the FOMC
“Recent indicators suggest that economic activity has continued to expand 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. In recent months, there has been modest further progress toward the Committee’s 2% inflation objective.”
“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 have moved toward better balance over the past year. 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%. 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. 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.”
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.
Commentary from industry leaders
Bright MLS Chief Economist Dr. Lisa Sturtevant had the following reaction to the announcement by the Federal Reserve Chair Jerome Powell:
“Surprising no one, the Federal Reserve announced no change to interest rates today. But the Fed did reflect on this morning’s report from the Bureau of Labor Statistics, which showed that consumer prices were flat between April and May, providing good news that inflation is moving in the right direction.”
“The Fed also released its economic forecasts, which show just one interest rate cut in 2024.”
“The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop. Mortgage rates, which have remained higher for longer, will likely remain in the high sixes until later this year. Some homebuyers who have been sidelined by affordability challenges are going to wait until rates come down to buy. Increasingly, home sellers may have to do more negotiating to attract offers.”
