What the May FOMC meeting statement said
The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, left the Federal Funds rate unchanged at a range of 4.25 to 4.5 percent at its meeting on May 7.
Despite softer surveys, the economy holds steady
The March Fed meeting was just 7 weeks ago, yet since then, we’ve had a major tariff announcement and rising economic uncertainty as consumers report concern about their personal financial situation, the likelihood of losing a job, and the general business outlook, with the expectations component of consumer confidence falling to its lowest since October 2011 in the April preliminary data. Nevertheless, both March and April jobs reports showed a still healthy labor market, with unemployment at 4.2%.
Furthermore, after faltering in April, equities markets have regained footing heading into May. While there are questions around what higher tariffs will mean for price growth in the next few months, the recent data showed that March annual inflation ebbed to a 4-year low, a sign that the Fed’s policy moves have been effective, even if there is at least one prominent critic of the current policy stance.
Fed acknowledges higher risks to both unemployment and inflation
Without a scheduled update to its summary of economic projections, the major news coming out of this week’s meeting is likely to hinge on forward looking indicators in the statement or in Chair Powell’s media conference. In the statement following the May 7 meeting, the Committee noted that “the risks of higher unemployment and higher inflation have risen” and also emphasized the Committee’s commitment to supporting both sides of its dual mandate–maximum employment and 2% inflation. Even though risks to both sides of the mandate have grown, they remain in balance, suggesting that the current stance remains the right one, for now. There are many unknowns on the horizon that outweigh what we know from current data, and in the media conference following the meeting, Chair Powell offered little speculation on how the risks might play out.
Mortgage rates likely to remain steady
As a result, mortgage rates are likely to remain in the high-6% range they’ve held for the last 6+ months. I also expect home sales are unlikely to budge much from their recent trend, even as the number of for-sale homes continues to improve, giving buyers more choice.
Still high costs stemming from high home prices and elevated mortgage rates are a particularly tough hurdle for first-time homebuyers, a factor that caused a dip in the U.S. homeownership rate in the first quarter. Those who plan to move forward in the search for a home are not only likely to have more time to make decisions in a slower-moving housing market, they are also likely to see more flexibility from sellers, which is a welcome development.