Citing that the unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid, the Federal Open Market Committee voted on Wednesday to keep the fed funds rate in the 4.25% to 4.5% range in the near-term.
However, the Committee notes in its statement that uncertainty around the economic outlook has increased.
This is in addition to inflation remaining somewhat elevated.
The Committee stressed that it is being attentive to the risks to both sides of its dual mandate and that it is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
The Committee reports that it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion.
The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion.
“As expected, the Federal Reserve announced that it will maintain the federal funds rate at 4.25 to 4.50 percent, reinforcing its measured approach to monetary policy amid a complex economic landscape,” says Samir Dedhia, CEO of One Real Mortgage, in a statement. “The decision reflects the Fed’s ongoing assessment of inflation, employment, and global trade uncertainties, particularly in light of recent tariff discussions that could contribute to price pressures. While inflation has eased in recent months, it remains above the Fed’s 2 percent target, and policymakers are opting to keep rates steady while closely monitoring economic conditions before making any adjustments.”
“Recent indicators suggest that economic activity has continued expanding at a solid pace, with the labor market remaining resilient,” Dedhia says. “The unemployment rate has stabilized at a low level, and while wage growth has slowed, overall job market conditions remain strong. Inflation, while somewhat elevated, has moderated compared to last year’s peak.”
“The Fed’s latest statement emphasizes that risks to achieving its dual mandate of maximum employment and stable inflation are now more balanced than in previous months,” Dedhia adds. “However, uncertainty around the economic outlook has increased, prompting the Fed to remain cautious in its approach. Additionally, the Committee confirmed that it will continue reducing its holdings of Treasury securities and mortgage-backed securities, though the pace of Treasury runoff will slow starting in April, allowing for a more gradual tightening of financial conditions.”
Dedhia says he expects mortgage rates to remain steady “or continue to decrease throughout the year, further supporting homeownership opportunities.”
“While credit card and auto loan rates are likely to stay elevated in the near term, the overall direction of interest rates suggests a more stable lending environment.” He says. Looking ahead, we anticipate that the Fed will begin cutting rates in 2025, likely implementing two rate cuts as inflation continues to moderate and economic conditions evolve. This outlook signals potential relief for borrowers, particularly in the housing market, as lower rates could improve affordability and drive increased activity in the real estate sector.”
In a separate statement, Ryan Marshall, CEO of real estate data analytics, valuation and settlement services firm Voxtur, says “the Federal Reserve’s war in fighting stubborn inflation continues to impact the day-to-day lives of American households.”
“On top of this, the Fed now has to look closely at any tariff-related price increases, which would also keep interest rates higher for longer,” Marshall says. “That said, as the economy seems to continue its so-called ‘soft landing,’ we expect mortgage rates to drift lower through the summer gradually, but not by more than a percentage point.”
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