Fed holds rates steady for the sixth straight time

The Federal Reserve’s Federal Open Markets Committee (FOMC) maintained its short-term policy interest rate steady at a range of 5.25% to 5.5% for a sixth consecutive meeting on Wednesday.

“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%,“ the FOMC said in a statement. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.“

During their meeting in March, policymakers indicated that they still envisioned three interest rate cuts in 2024. But with inflation remaining sticky and unemployment staying below 4%, these expectations are becoming less likely. 

Recent economic data hasn’t given the Fed confidence that inflation will continue to decline. Strong inflation data in the first quarter, coupled with a robust labor market, have postponed expectations for the first Fed rate cut. In April, Fed Chairman Jerome Powell, speaking at the Washington Forum, made it clear that rate cuts were not imminent due to the strength of the economy.

The economy has maintained surprising momentum despite the current level of short-term rates. With the unemployment rate below 4%, companies are steadily adding workers and real wage growth is observable as inflation eases. Although upward movements in inflation are noteworthy, considerable progress toward the Fed’s 2% target has been made.

Since the March FOMC meeting, Freddie Mac’s average 30-year fixed mortgage rate has increased from 6.74% to 7.17% prior to the May meeting. Before the next FOMC meeting on June 12, two additional inflation readings are expected.

“While it’s a possibility, I don’t think that we’ll see much change in mortgage rates following this Fed meeting, because the Fed has been willing to let the data lead at this stage in the cycle,” Realtor.com chief economist Danielle Hale said in a statement. “In order to see mortgage rates drop more significantly, the Fed will need to see more evidence that inflation is slowing.” 

For homebuyers and sellers, this suggests that housing affordability will remain a top consideration. This could drive home purchases in more affordable markets, predominantly in the Midwest and South, according to Hale.