The Federal Open Market Committee today voted to keep the Fed Funds rate flat for now at 5.25% to 5.5%. but hinted that a rate cut could come in September.
Citing that “economic activity has continued to expand at a solid pace” and that “job gains have moderated,” the committee noted “further progress” toward its 2% inflation objective.
In a statement, Fed Chairman Jerome Powell says the committee remains “squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people.”
“Our economy has made considerable progress toward both goals over the past two years,” Powell says. “The labor market has come into better balance and the unemployment rate remains low. Inflation has eased substantially from a peak of 7 percent to 2.5 percent. We are strongly committed to returning inflation to our 2 percent goal in support of a strong economy that benefits everyone.”
“Inflation has eased notably over the past two years but remains somewhat above our longer-run goal of 2 percent,” he adds. “Total PCE prices rose 2.5 percent over the 12 months ending in June; excluding the volatile food and energy categories, core PCE prices rose 2.6 percent. Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, and businesses, and forecasters, as well as measures from financial markets.”
Powell emphasizes that the committee does “not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent.”
Odeta Kushi, deputy chief economist for First American, says “The expectation of a Fed rate cut is already exerting downward pressure on mortgage rates.”
“Should incoming data on labor and inflation support a more dovish Fed, we could see further, albeit gradual, declines in mortgage rates,” Kushi says. “As such, we expect a very modest easing in the affordability constraints holding back potential first-time buyers, as well as a little easing in the magnitude of the rate lock-in effect for existing homeowners.”
“However, a decline in mortgage rates may boost demand more than supply,” Kushi adds. “Traditionally, existing home inventory has made up the bulk of total inventory, and approximately 86 percent of existing homeowners have a rate below 6 percent. So, even if mortgages rates fall gradually through the remainder of this year, they are unlikely to fall enough to ‘unlock’ the majority of homeowners.”
Photo: Etienne Martin