The Federal Reserve’s Federal Open Markets Committee (FOMC) held its short-term policy interest rate steady at a range of 5.25% to 5.5% at its first meeting of the year on Wednesday.
The decision falls in line with the stance taken by central bank officials in recent meetings, where they maintained the status quo while deliberating the possibility of future rate cuts. Investors will heavily monitor Fed Chair Jerome Powell’s news conference at 2:30 p.m., looking for signs about when and how the central bank might shift its policy stance this year.
No formal economic or rate projections will be provided. Before its next meeting on March 20, the Fed will have time to absorb more information about the state of the U.S. economy and labor markets, starting with the release of a new jobs report on Friday.
“Markets had already priced in a ‘no-change; from the Fed, but political pressure is mounting on the Federal Reserve to look to cut rates sooner than later,” said A&D Mortgage CEO Max Slyusarchuk. “Unless they bend, we believe rates will begin to start to slowly pull back in the second half of this year, with many economists predicting a mortgage-positive outcome from the May meeting.”
In 2023, the Fed hiked the benchmark federal funds rate by a quarter point at four meetings while pausing at four other meetings.
Despite the Fed’s hawkish rate-hike campaign, inflation has decreased faster than expected. Consumer spending has been strong and the economy expanded at a surprising 3.3% annual rate in the fourth quarter.
After a sharp easing at the end of 2023, mortgage rates have started to stabilize in early 2024. The Freddie Mac mortgage rate index shows the 30-year fixed rate averaging 6.69% as of Jan. 25.
The labor market remains resilient with a sub-4 % unemployment rate and job openings still outweighing unemployed workers. The Fed has also made progress in harnessing inflation back toward its 2% target, as it acknowledged in its December 2023 meeting. But inflation came in stronger than expected in December, sending mixed signals to the market.
Investors expect rate cuts to begin as soon as May, according to Realtor.com chief economist Danielle Hale. Meanwhile, the National Association of Realtors expects the Fed to cut interest rates four times in 2024.
In a letter dated Jan. 28, Sen. Elizabeth Warren of Massachusetts and three Democratic colleagues (Colorado’s John Hickenlooper, Nevada’s Jacky Rosen and Rhode Island’s Sheldon Whitehouse) urged Powell to lower interest rates to help bring down housing costs.