The Fed’s announcement that they’re holding interest rates steady–but still project three rate cuts in 2024–won’t immediately send mortgage rates down, but it shouldn’t send them up, either.
The Federal Reserve announced they’re holding interest rates steady during their March 20 meeting, as expected. The Fed still projects three rate cuts this year starting at their June meeting, despite disappointing economic data to start the year. There were no fireworks at today’s Fed meeting; it was more of a sigh of relief that they didn’t cut back on the number of expected rate cuts.
The decision: Held the Fed funds rate steady as expected at 5.25-5.5%. The statement did not change much, suggesting rate cuts are not imminent.
Economic and interest rate projections:
- The committee formally projects their outlook for the economy and interest rates every other meeting. They released a new set of projections today. Compared to the last set of projections, today they projected higher economic growth (2.1% vs 1.4% GDP growth), lower unemployment rate (4.0% vs 4.1%), and higher inflation (2.6% vs 2.4% core PCE growth) for 2024.
- Despite expecting a hotter economy in 2024, they are still projecting 3 rate cuts of 25 bps each, same as the December projection. More committee members were projecting 2 cuts than before. That means that even though the median stayed the same, the projection is leaning slightly more toward higher rates compared to December.
- Markets had been worried that they would cut back expectations for rate cuts to two from three after recent hot inflation and job market data, and breathed a sigh of relief on the news. Fed Chairman Jerome Powell explained in the press conference that they didn’t think those two most recent months of data changed the overall picture much, meaning they expect the data to be bumpy but they still see progress toward their goal.
When the Fed will start cutting rates: Powell had the chance during the press conference to take a rate cut at the May 1 meeting off the table, as he did in the January meeting. But he did not. A cut in May is unlikely, however, as there aren’t enough inflation and job market data reports before that meeting for the Fed to start cutting. Most likely, the Fed will start cutting in its June meeting, which gives it enough time to get enough economic data to feel confident about inflation and unemployment, and enough time before the election to avoid accusations of being politically biased.
What this means for homebuyers and sellers: Mortgage rates are still expected to fall gradually this year as the Fed solidifies its plans to cut rates this year. When enough economic data accumulates to set the stage for that, rates will start to drop. However, we don’t expect rates to drop precipitously. We should end the year in the low 6% range. That means the housing market won’t shift dramatically this year, but we do expect more supply and transactions this year amidst weakening price growth.
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