FOMC Holds Interest Rates Steady; MBA’s Economist Weighs In

The Federal Open Markets Committee July 29 kept interest rates steady, holding the target range for federal funds rate at 3.5-3.75%.

“With inflation elevated and likely moving higher due to the spike in oil prices, and with the job market resilient, there was more uncertainty going into the July FOMC meeting than we have seen in some time. The FOMC’s decision to hold the federal funds target at its current level, coupled with the three dissents at this meeting, with each of these dissenting members preferring to hike rates now, indicates that the Fed is likely moving into a hiking cycle soon. Markets are now expecting they could start hiking before the end of the year,” said MBA SVP and Chief Economist Mike Fratantoni.

“Higher inflation, and this turn in monetary policy, certainly have contributed to the increase in mortgage rates, now at their highest levels since last August,” Fratantoni continued. “These higher rates are posing a headwind for the housing market. MBA’s forecast is for mortgage rates to average close to 6.5% for the foreseeable future.”

Click here or see the FOMC’s full statement below:

The Federal Open Market Committee approved the following statement for release by a 9 – 3 vote:

The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4%, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system.

Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated relative to the Committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability. 

Voting against the monetary policy action were Beth M. Hammack, Neel Kashkari and Lorie K. Logan, who preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting.