Fed Not Likely To Cut Rates Anytime Soon


Kicking the can down the road, moving the goalposts – whatever idiom you want to use – such an expression will likely be appropriate for this week’s meeting of the Federal Open Market Committee, which appears poised to hold the target range for the federal funds rate steady at 5.25% to 5.5%.

While that margin has not been raised since last summer, there has been hope that at some point in 2024, Federal Reserve Board chairman Jerome Powell will come to the microphone at the conclusion of one of the FOMC’s two-day summits and announce the beginning of a rollback of the series of rate hikes that steadily climbed from near-zero in early 2022 to their current level by mid-2023.

When minutes were published from the Fed’s end-of-January meeting about a month ago, according to Barron’s, the holdup seems to remain to be tied to inflation that is not moving satisfactorily – or quickly – enough toward officials’ long-stated goal of 2%. (In fact, as that article indicates, inflation actually ticked upward in January; the good news is that the darkest fears of a looming recession have largely subsided in recent months.) The policy interest rate doesn’t look to be in danger of getting bumped any higher, yet neither is the timing apparently right for a rampdown.

As further evidence of that, ING reports that Powell, appearing before Congress on March 6, echoed a familiar, recent refrain: that policymakers “believe that our policy rate is likely at its peak for this tightening cycle.”

But as Investopedia points out, this continued caution, albeit caused by the bumps in the road with regard to inflation, may have already thrown off Powell’s own prediction in December that the Fed might be able to pull off three rate cuts in 2024.

Investor’s Business Daily said much the same thing in its preview of the week ahead for the stock market on Sunday night, even going so far as to wonder if Powell would specify at his next press conference whether there are now only two cuts forecast this calendar year rather than the initially stated goal of three.

Whatever the rest of 2024 brings, CME Group’s FedWatch tool is in lockstep with popular opinion of what will happen this week, putting the odds at 99% that no action will be taken at the conclusion of the FOMC meeting Wednesday, and not predicting a viable chance of a decrease in the key rate until two meetings from now, in mid-June.

Heritage Capital president Paul Schatz told Forbes that he thinks even a June cut is unlikely, while John Kornitzer, founder of the Buffalo Funds, painted an even bleaker picture in the same piece.

“I have advised my clients that the Fed won’t begin cutting rates until inflation is under control at 2%,” Kornitzer is quoted as saying – yet there’s no assurance at all that that target will be reached in 2024 or perhaps even in 2025.

For now, as those keeping an eye on Fed policy are well aware by this point, though what action the central bank takes every six weeks or so may be telegraphed days or even weeks before, the devil’s in the details when it comes to parsing Powell’s postmortems and taking officials’ temperature on rate movements.

“The mortgage market response to the March 20 meeting will depend not on what the Fed does, but on what it says,” Scott Clemons, chief investment strategist for Brown Brothers Harriman, told CBS News MoneyWatch last week.

Inc. also reports that at this week’s meeting, the quarterly “dot plot” of policymaker projections is due to be released, providing still further insight.

Here again, too, is a reminder that the FOMC’s decision does not directly dictate the direction of mortgage rates, but it can safely be said that what comes out of each meeting informs the housing market which way its interest rates will be moving. In that same MoneyWatch article, Rick Mount of Churchill Mortgage predicted little short-term movement, while professor Jonathan Ernest of Case Western Reserve University pumped the brakes on those who may think 3% is within sight for a 30-year fixed-rate mortgage.

At the end of 2024, mortgage rates might still be close to double that amount; Fannie Mae says 5.9% by year’s end, and the Mortgage Bankers Association predicts 6.1%.

Although 3% is preferable to 6%, of course, advice to potential homebuyers remains the same as in months past. If you’re compelled to buy now, strike while mortgage rates are already markedly lower than they were at their peak last year. Then, consider refinancing if and when rates are meaningfully down.

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