FOMC Meeting Will Be Watched Closely

By PATRICK LAVERY
The inauguration of President Donald Trump to his second, non-consecutive term last Monday was quickly followed by a flurry of executive orders and policy redirection that the administration hopes will set the course for the United States for the next four years.
But the first economic crisis of the new Trump presidency has already taken shape in the form of an avian influenza – bird flu, for short – that has infected or killed more than 136 million birds across America, according to the Centers for Disease Control and Prevention.
For some, an animal-borne virus that can infect people who come in direct contact, with one dead and 67 infected in the U.S. so far (also according to the CDC), conjures up memories of five years ago, with worries as to whether this flu will mutate and become transmissible from person to person, and trigger the next pandemic.
And given how the last pandemic set off a number of Federal Reserve Board decisions eventually culminating in a two-decade high key interest rate that only in the last six months has begun to be ramped down – taking mortgage rates along for the ride with it – housing market experts and prospective homeowners alike are sure to be watching this week’s Federal Open Market Committee meeting extremely closely.
It is an FOMC meeting that the experts predict will be uneventful on its surface. CME Group’s FedWatch tool forecasts a 99.5% chance that the target range for the federal funds rate will be held at its current level of 425 to 450 basis points, and only about a 28% probability right now that the rate will be lowered further at March’s meeting.
Reuters reported that Trump on Thursday told the World Economic Forum in Switzerland that he intended to pressure the Fed, as he tried to do in his first term, to lower interest rates right away.
“I’ll demand that interest rates drop immediately, and likewise they should be dropping all over the world,” the president said at the conference.
Yet the inclination at the moment is that Fed policymakers would prefer to let the Trump administration make its first chess moves, preferring to react at the next meeting on March 18.
Reducing inflation to 2% is the FOMC’s much-publicized goal, that rate hasn’t shrunk as quickly as the board would have liked, and there is a perception that some Trump policies could be inflationary.
“The target range now reflects 100 basis points of cuts since September, and the policy rate is now closer to my estimate of its neutral level, which is higher than before the pandemic,” Federal Reserve Governor Michelle Bowman said in a speech in California on January 9, as reported by Forbes. “But given the lack of continued progress on lowering inflation and the ongoing strength in economic activity and in the labor market, I could have supported taking no action at the December meeting.”
Back to the bird flu: There is, of course, an economic impact that has nothing to do with public health, and a lot to do with Trump’s campaign promise to lower the cost of groceries.
Because, in general, the entire population of a poultry farm where the virus has appeared must be culled to stop its spread, the New York Times reports it could take months before the U.S. supply of egg-laying chickens returns to normal levels.
Brooke Rollins, President Trump’s nominee for secretary of agriculture, said in her Senate confirmation hearing on Thursday that the new administration is making it a priority to “immediately and comprehensively get a handle on animal disease outbreaks,” according to that New York Times report.
But in the meantime, NYT also said, grocery stores and restaurants are currently paying a record $7 per dozen eggs, exponentially higher than about the $2.25 of a year ago, and consumers are seeing a 37% increase.
Stock markets, both at home and abroad, have not quite succumbed to any sort of flu panic for now. In the first week of the new Trump administration, as detailed in a recap from Euronews, both U.S. and European markets soared to new heights; however, again, caution about the thought process of the Trump White House abounds.
If a “trade war,” as the Euronews report puts it, erupts over President Trump’s threats to impose stiff tariffs across the globe, inflation could spike to levels that would make any further discussion of the Fed lowering its key rate a non-starter.
So, where does all of this leave housing?
The National Association of Realtors reported on Friday that existing home sales rose 2.2% in December, the best pace since last February and the largest year-over-year gain (9.3%) reported since June 2021. The 30-year fixed mortgage rate as of Thursday had dipped below 7% to 6.96%, but that’s meaningfully upward from 6.69% 12 months ago.
“Home sales in the final months of the year showed solid recovery despite elevated mortgage rates,” said NAR Chief Economist Lawrence Yun in a press release. “Home sales during the winter are typically softer than the spring and summer, but momentum is rising with sales climbing year-over-year for three straight months. Consumers clearly understand the long-term benefits of homeownership. Job and wage gains, along with increased inventory, are positively impacting the market.”
With that said, CBS News MoneyWatch advised that this week could provide a good window to open a home equity loan at a low rate, but that that rate could turn upward after the FOMC meeting – even if the Fed takes no action as widely expected.
The Mortgage Note will be following all of the news from that meeting at its conclusion on Wednesday, with a full update coming on Thursday morning.