The Fed said it liked economic data but said it was too early to call for rate cuts.
federal reserve system announced a widely anticipated fourth interest rate suspension. At its January meeting on Wednesday, it kept the federal funds rate unchanged at 5.25% to 5.5%, its highest level in 22 years.
The central bank said it would continue to assess the impact of its restrictive monetary policy on the U.S. economy before cutting interest rates. Fed officials expect at least three rate cuts this year, with the central bank saying rates are expected to fall to 4.6%. Latest economic forecasts In its Summary of Economic Projections (SEP) it said:
Fed Chairman Jerome Powell said: “Rate rates are likely to have reached the peak of this tightening cycle, and if the economy performs broadly as expected, it would be appropriate to begin tapering policy restraints at some point this year.” I think it’s highly likely.” told reporters on Wednesday.. “However, since the pandemic, the economy has surprised forecasters in many ways, and continued progress toward the 2% inflation target is not guaranteed.”
How quickly rates will be cut will depend on how quickly inflation approaches its 2% target rate or whether the Fed senses the U.S. economy is headed toward a recession. The economy is stable for now. US Gross Domestic Product (GDP) 4th quarter Growth in 2023 was stronger than expected, increasing at an annualized rate of 3.3% in the October-December quarter, after rising 4.9% in the third quarter of 2023, according to the U.S. Bureau of Economic Analysis (BEA). The better-than-expected growth was driven by strong consumer spending on goods and services.
Consumer prices also rose more than expected. On an annualized basis, prices rose 3.4% in December, up from the previous month’s 3.1% rise. consumer price index (CPI) Published by the Bureau of Labor Statistics (BLS).
“Markets were already pricing in ‘no change’ from the Fed, but political pressure is increasing for the Fed to cut rates sooner rather than later,” Max Slyusarchuk, president and CEO of A&D Mortgage, said in a statement. ” he said. “Unless policy bends, we think interest rates will start to fall slowly in the second half of this year, and many economists expect a positive outcome for mortgages at the May meeting.”
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Interest rate reduction is necessary to keep mortgage interest rates down
To bring mortgage rates down significantly, the Fed would need to start lowering interest rates. Fannie Mae expects mortgage rates to fall below 6% by the end of 2024, based on the Fed’s move to cut rates sooner than expected.
In recent weeks, 30-year mortgage rates have stabilized in the mid-6% range, prompting some buyers to return to the market. Assuming household income grows steadily at 3% and home prices rise at 3.5%, a decline to 6% would reduce housing affordability by 8%, according to First American Deputy Chief Economist Odeta Cusi. They say it will improve.
“A more affordable housing market will be welcome news for buyers who are currently on the sidelines,” Cusi said. “But even at this level, affordability will remain more than 35% worse than it was in February 2022, just before the Fed started raising rates.”
The Fed also reiterated its plans to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities.
“Lowering the MBS cap will help the downward trend in mortgage rates later in the second half of this year, but we expect to see an improvement in mortgage rates into the spring,” Dr. Thelma Hepp, Chief Economist at CoreLogic, said in a statement. It is not clear whether that is the case.” Home buying season. ”
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Lower interest rates are beneficial for Americans with credit card debt.
The possibility that the Fed will lower interest rates later this year will also affect American consumers, who have historically high levels of debt, especially on credit cards. Lower interest rates will allow Americans to refinance high-interest debt and put more money in their pockets, said Michele Ranelli, vice president of U.S. research and consulting at TransUnion. That’s what it means.
According to one study, Americans now have $1.8 trillion in credit card debt after accumulating a total of $48 billion in new spending in the third quarter of 2023. Recent reports on household debt From the Federal Reserve Bank of New York. Credit card balances jumped $154 billion year over year, the largest increase since 1999, as consumers tapped into available credit to cope with higher-than-expected costs for goods and services.
“With lower interest rates, many of these consumers are ultimately able to take advantage of lower-interest products, such as unsecured personal loans, or, for homeowners, through home equity products, to replace existing credit card loans,” Ranelli said. It may be possible to refinance.”
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