Fed Holds Rates Steady

(Federal Reserve headquarters, Washington, D.C.)

The Federal Reserve held rates steady Wednesday and now projects only one rate cut in 2024.

“Although May’s inflation data came in better than expected, perhaps surprisingly, the Federal Open Market Committee is now projecting only one rate cut in 2024,” MBA Senior Vice President and Chief Economist Mike Fratantoni said. “However, it is notable that the dot plot indicates it is a close call between one and two cuts. The tight job market–highlighted again in May’s employment data–is likely leading many committee members to continue to be cautious about cutting rates before inflation is consistently lower.”

Fratantoni noted the FOMC also moved up its projection for the terminal rate, as many expected. “Once it starts, this cutting cycle is likely to be shorter than past cycles,” he added.

Selma Hepp, Chief Economist with CoreLogic, Irvine, Calif., said the announcement confirms the Fed’s “higher-for-longer” position on interest rates. “But the stance is looking more untenable as more American households continue to pull back on spending,” she said. “As more economic indicators begin to confirm this and unemployment begins to rise, the Fed will then look to cut rates. What’s not clear yet is when exactly the disinflation signs will be consistent enough for the first rate cut–we hope it’s still this year.”

Fratantoni said Wednesday’s announcement does not change MBA’s forecast for mortgage rates. “We still look for mortgage rates to drop to about 6.5% by the end of 2024,” he said.

The full FOMC statement read:

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 percent inflation objective.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent 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 5-1/4 to 5-1/2 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 percent. 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 percent 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.