Fed Skips Rate Hike in March. When are the Rate Cuts Coming?

No Fed hike in March

The Federal Reserve concluded its March meeting by holding things steady.

The central bank now skipped a rate hike five consecutive times. Those hoping for a rate cut — as hinted at in the December meeting — will have to be patient a little longer. While inflation continues to show moderation, it remains above the Fed’s long-term target. Going forward, the Committee will adjust its policies based on economic data, outlooks, and risks.

“The FOMC held rates unchanged at its March meeting and continued to signal its next move will be a rate cut. The only question is when,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

The Fed’s role and March’s FOMC meeting

The Fed doesn’t technically set mortgage interest rates. Multiple factors dictate mortgage rate movements, but they do intrinsically correlate with the central bank’s policy actions.

At its March meeting, the Federal Open Market Committee (FOMC) held the federal funds target range static for the fifth time in a row. Although inflation is on an overall downtrend, it continues to fluctuate and remains above the Committee’s goal of 2%.

The U.S. annualized inflation rate hit a 41-year high of 9.1% in June 2022 and most recently reached 3.2% in February, according to the U.S. Bureau of Labor Statistics. At the previous meeting in January, the FOMC said that we shouldn’t anticipate rate cuts until disinflation appears sustainable. While earlier predictions gave optimism for cuts to begin in the spring, that might get pushed further out as inflation has proven stickier than originally believed.

"[The FOMC’s] new projections indicate three cuts for 2024, unchanged from their December projections for 2024. We are forecasting that the first rate cut will be in June, and a total of three rate cuts this year,” Fratantoni continued. “The committee did not indicate any changes to the pace of quantitative tightening. We continue to expect longer-term rates, including mortgage rates, to decline gradually over the course of this year.”

The FOMC will also continue reducing its Treasury securities, mortgage-backed securities and agency debt. Of course, the Committee will adjust its monetary policy actions as appropriate. The next FOMC meeting will take place on April 30-May 1, 2024.

How will mortgage rates react?

Borrowers wrestled with interest rates reaching a 23-year high in 2023. However, they ended the year on a downswing and are expected to fall further throughout 2024.

The FOMC’s actions will certainly play a role in that. The day following each of the three previous rate pauses, the average 30-year fixed-rate mortgage (FRM) decreased three basis points (0.03%), eight basis points (0.08%) and six basis points (0.06%), according to Freddie Mac.

Interest rates typically rise alongside increases to the fed funds rate and decrease after cuts. In its statement, the FOMC described economic activity as “expanding at a solid pace,” with strong job growth and low unemployment.

The FOMC’s ongoing rate hike pause, combined with those economic indicators signal they believe inflation and interest rates should gradually descend.

“The Fed’s decision to hold steady on rates is not a surprise to mortgage lenders as we see that inflation is not at its target yet. That said, we are looking to the government to support home buyers through a slate of incentives, namely through a proposed home buyer tax credit. These are sure to stimulate sales somewhat but won’t miraculously turn the industry around. We need the Fed to meaningfully reduce rates for that to happen,” said A&D Mortgage CEO Max Slyusarchuk.

Should you lock in a mortgage rate?

Mortgage rates are volatile by nature, influenced by multiple economic and political factors.

While outlooks can shift, the FOMC’s latest action signals upcoming rate cuts and a downward trajectory for interest rates. Although the average 30-year FRM is still high compared to the bottomed-out rates of the pandemic, you can (and should) negotiate your rate and get creative in budgeting. You also shouldn’t forget that building equity is one of the biggest advantages of buying a house.

If you’re ready to begin your path to homeownership, talk to a local mortgage professional to see what rates and loan types you qualify for.