FOMC Holds Interest Rates Steady; Read MBA Economist’s Analysis

The Federal Reserve’s Federal Open Market Committee held interest rates steady July 30.

The Mortgage Bankers Association’s Senior Vice President and Chief Economist Mike Fratantoni reacted to the released statement. “The news from [the] FOMC meeting was that two governors, [Michelle] Bowman and [Christopher] Waller, dissented from the decision to keep rates steady at this time. The FOMC statement acknowledges that economic growth has moderated but given the uncertainty about the future paths for inflation and unemployment, the majority of the FOMC members determined that the better course was to hold rates steady for now,” he said.

“The dissenters had previewed their arguments in recent speeches. Their concerns are that the Fed would be better to cut rates now, before weakness in the job market becomes more apparent. While the tariff increases could well lead to a pickup in inflation, the dissenters view that the increase is likely to be short-lived,” Fratantoni continued.

Fratantoni also explained how this announcement will affect MBA’s outlook.

“MBA’s forecast is that conditions will evolve such that the Fed will cut rates twice this year and once more in 2026. Softening in the job market is likely to be the primary driver to have the FOMC move its short-term rate target down and closer to neutral,” he noted. “Unfortunately for the housing and mortgage markets, the Fed’s actions with respect to short-term rates are likely to have little impact on longer-term rates, including mortgage rates. MBA’s forecast is for 30-year fixed mortgage rates to move just a little lower to perhaps 6.5% over the next year, as longer-term rates continue to be impacted by large deficits and debt and the growing issuance of Treasury securities to fund those deficits, which will likely keep mortgage rates near today’s level even as the Fed loosens monetary policy.”

The Federal Reserve Board’s full statement:

Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional 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 will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and 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; Michael S. Barr; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action were Michelle W. Bowman and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.