What the March FOMC meeting statement said:
The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, voted to keep the short-term policy rate steady, once again, at a range of 5.25% to 5.5%. The Fed has kept rates steady since its July 2023 rate hike, which is widely expected to be the last hike in a tightening cycle that started in March 2022, when the Fed Funds rate was increased above 0% for the first time since March 2020.
‘Higher for longer’ but not in 2024
The bigger news in Wednesday’s Fed meeting is from the update to the Summary of Economic Projections, a roundup of the individual members’ forecasts for the next few years ahead. Last updated in December, the projections showed that members expected slowing economic growth in 2024 and 75 basis points of easing by the end of 2024.
While the projections for the policy rate at the end of 2024 have not changed, policymakers do expect fewer rate cuts in 2025 and 2026 than they anticipated just three months ago—in other words, “higher for longer.” This could be in response to upticks in the near-term outlook for overall PCE and Core PCE inflation and a moderately improved outlook for economic growth and the unemployment rate. Nevertheless, the Fed reiterated its commitment to a target of 2% inflation three times in its statement, and Fed Chair Jerome Powell is likely to reinforce this target in his comments as well.
The economy remains resilient
The economy has remained remarkably resilient in the face of 525 basis points of tightening. The unemployment rate continues to fall below 4%, companies continue to expand payrolls, and workers are seeing real wage growth as inflation eases.
Despite recent upticks, the big-picture trend in inflation has been toward the Fed’s 2% target. The Fed’s current policy stance is restrictive, and even after several rate cuts, policy would continue to be restrictive, giving the Fed some leeway.
Mortgage rate path depends on incoming data
After easing sharply at the end of 2023, mortgage rates have hovered in a narrower 6.5% to 7% band so far in 2024. The widely quoted Freddie Mac mortgage rate index, which fell sharply to 6.67% in the week after the December FOMC meeting, sat at 6.69% before the January meeting and at 6.74% just before Wednesday’s meeting.
In order to see mortgage rates drop more significantly, the market and the Fed will need to see more evidence that inflation is slowing and the economy is on a sustainable path, but the data has been relatively mixed recently. I don’t expect we’ll see much of a market reaction to the Fed meeting this week because the Fed is waiting for the incoming data, just like the rest of us.
Howbuyers and sellers can adapt
For homebuyers and sellers, it means that the housing affordability improvements anticipated in the Realtor.com 2024 Housing Forecast as mortgage rates drop will unfold slowly.
In this environment, the mortgage rate lock-in is likely to be an important constraint on potential home sellers, and new construction will continue to be a vital source of housing options for buyers. This also means that options such as assumable mortgages—which allow a seller to let a buyer take over an existing mortgage, including the existing (likely lower) rate—can be a valuable hack for buyers who can find them. A small share of the total outstanding mortgage pool is eligible for assumption, and the share of sellers who are aware of this feature and advertising it on their listings is even smaller. However, in some of the markets where sellers are most likely to advertise this feature, Realtor.com research suggests that buyers can find mortgage assumption advertised on 1% to 3% of active homes for sale.