Fed Holds Status Quo in June, Hints at One Rate Cut in 2024

No Fed hike or cut in June

The Federal Reserve wrapped up its June meeting by keeping everything steady.

The central bank now skipped a rate hike or cut seven consecutive times. Although the latest inflation reading descended from 3.4% in April to 3.3% in May, it’s proving hard to bring down and remains above the long-term target of 2%.

“Inflation remains a sticky point in the nation’s economy. As the Consumer Price Index remains somewhat inflated, it is unlikely the Fed will cut interest rates in the near term. However, as the economy gradually slows down, the Fed will get the confidence it seeks to consider a rate cut at least once this year,” said Selma Hepp, chief economist at CoreLogic.

The Fed’s role and June’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 June meeting, the Federal Open Market Committee (FOMC) held the federal funds target range static for the seventh time in a row. The annual inflation rate decreased for the second straight month but has mostly moved sideways since last fall. Notably, it remains above the Committee’s goal of 2%. In its post-meeting statement, the FOMC said it “will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

The U.S. annualized inflation rate hit a 41-year high of 9.1% in June 2022 and most recently reached 3.3% in May, according to the U.S. Bureau of Labor Statistics. At the previous meeting in May, many industry experts anticipated a rate cut could come as soon as the June FOMC meeting. However, economic activity keeps expanding and job gains continue to show strength.

In addition to maintaining the current fed funds rate, the FOMC will also keep reducing its Treasury securities, mortgage-backed securities and agency debt. As always, the Committee will adjust its policies as necessary based on economic data, outlooks, and risks. The next FOMC meeting will take place on July 30-31, 2024.

How will mortgage rates react?

After climbing to a 23-year high in 2023, borrowers haven’t seen the expected decline in mortgage interest rates thus far in 2024. However, they are expected to fall throughout the year, with anticipated Fed cuts helping to drive them down.

The day following each of the three previous rate pauses, the average 30-year fixed-rate mortgage (FRM) posted a weekly decrease of six basis points (0.06%) in January, and then grew by 13 basis points (0.13%) in March and five (0.05%) in May, according to Freddie Mac.

Interest rates typically rise alongside increases to the fed funds rate and decrease after cuts. In its statement, the FOMC said economic activity has grown “at a solid pace,” while job gains remained strong and the unemployment rate low.

Inflation’s “modest further progress” toward the FOMC’s 2% goal leaves the door open for when a cut will be called for. A Fed cut followed by decreasing mortgage rates would surely be a welcome sign for house hunters, many of who have been sidelined due to being priced out of the marketplace.

“Considering the surging cost of homeownership and widespread affordability challenges, a cut in interest rates would alleviate some of the housing cost burden for many aspiring homeowners,” Hepp said.

Should you lock in a mortgage rate?

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

While outlooks can shift, the FOMC’s latest action signals it needs sustainable improvements to inflation before it makes any rate cuts. 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.