Unsurprisingly, Federal Reserve (Fed) officials made the decision not to cut interest rates yesterday afternoon, despite indicators that the economy is slowing.
Rates currently remain at an unchanged figure between 5.25% and 5.5%, with Fed Chair Jerome Powell suggesting that September may be the appropriate time to make cuts. Powell indicated that “a reduction in our policy rate could be on the table as soon as the next meeting in September.”
At the same time, Powell largely declined to provide any further speculation or guidance in regard to further cuts later in 2024. At the September Fed meeting, members will vote on their expectations for rates over the next couple years.
“I would just say I can imagine a scenario where there would be anywhere from zero cuts to several cuts depending on the way that the economy evolves,” Powell said in response to questions from reporters.
According to Realtor.com® Chief Economist Danielle Hale, “investors are nearly unanimous in expecting a Fed rate cut in September,” and “a rising unemployment rate and moderating job growth combined with further slowing inflation have convinced markets that policy could be loosened a tick.”
“It is almost exactly a year since the Federal Reserve stopped raising interest rates,” Bright MLS Chief Economist Lisa Sturtevant explained in a statement. “Expectations were for inflation to come down more quickly, but persistent upward pressure on prices—particularly housing costs—has meant that inflation has remained above the target.”
Sturtevant also noted that the labor market is strong thus far in 2024, and consumer spending is “upbeat.” Progress toward a 2% inflation rate is the ultimate goal right now, rather than hitting 2% exactly on the dot.
Delving deeper, Sturtevant believes that potential homebuyers looking for a big mortgage rate drop after the September meeting “are going to be disappointed,” saying that “the mortgage market may have already largely built in the impending rate cut, as we’ve seen mortgage rates come down over the past few weeks.”
Sturtevant concluded, noting that mortgage rates will drop down further in the fall, but not home prices, therefore affordability will continue to remain a pressing concern.
“Mortgage rates will come down more this fall, landing at about 6.4% by the fourth quarter. Home prices, however, are not projected to fall, so affordability is still a key challenge, particularly for first-time homebuyers. More inventory coming onto the market in the second half of the year will provide more options for buyers and will also moderate home price growth in the months ahead.”
For the full FOMC press conference, click here.
