Fed’s Decision To Hold Steady Welcome News In Mortgage World


As experts almost unanimously predicted, the Federal Reserve Board on Wednesday held its target range for the federal funds rate at 5.25% to 5.5%, meaning after a year and a half of upheaval, the range will approach the end of 2023 not having budged for more than a third of this year, from the last rate hike at the end of July until at least the Federal Open Market Committee’s next meeting two weeks before Christmas.

That may belie the fact that the Fed has raised the rate a total of 5 1/4 percentage points since early 2022, but for now, the stability is welcome news – at least in the housing market.

“Mortgage rates fell this week after the Federal Reserve opted to keep its target range for the federal funds rate unchanged,” Orphe Divounguy, Zillow Home Loans senior macroeconomist, said in a statement, albeit sounding warning signs about looming fluctuation due to employment and wage growth data. “Yields and mortgage rates benefitted from this week’s developments, but remain well above where they were even a month ago.”

Currently, mortgage rates across the United States are collectively edging dangerously close to 8%, with the 30-year fixed-rate mortgage averaging 7.79% as of last week according to Freddie Mac, and the 15-year fixed rate at 7.02%, nearly two straight months of gains and well above where both numbers were this time last year.

Federal Reserve Chairman Jerome Powell, in prepared remarks delivered after the FOMC released its policy ruling, indicated that he and fellow officials are keenly aware of the risk-reward potential of their drastic, yet gradually implemented, actions.

“The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation, and the full effects of our tightening have yet to be felt,” Powell said.

Inflation remains nearly double the Fed’s long-stated goal of 2%. Powell said that housing sector activity picked up “somewhat” over the summer but has now once again flattened, reflecting the higher mortgage rates compared to one year ago.

“A few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” the chairman said, adding, “Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.”

During a press conference held on Wednesday afternoon, Powell said the FOMC is not thinking about rate cuts, which have been predicted for 2024.

“We’re going into these meetings one by one,” Powell said, adding they will be looking at the data presented each time they meet.

With regard to mortgage-backed securities, the Fed in its Implementation Note did not appear to heed the urging of the Mortgage Bankers Association, National Association of Realtors, and National Association of Home Builders, which said in a joint letter in early October that the selling off of MBSs should stop “until and unless” the housing market stabilizes.

The FOMC’s next meeting, its eighth and last of 2023, is scheduled for Dec. 12 and 13 and will be accompanied by the release of the Fed’s final Summary of Economic Projections for the year.

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