What Will The Federal Reserve Do?
By PATRICK LAVERY
As a tariff standoff between President Donald Trump’s administration and the nations of Canada, China, and Mexico leaves the immediate future of the American economy hanging in the balance, odds are overwhelming that the Federal Open Market Committee will choose to leave its key interest rate at its current range of 4.25% to 4.5% after a two-day meeting this week.
Such a decision would leave the range for the federal funds rate unchanged from its status at the end of 2024 after the first two FOMC summits of the current year – the first having been in late January, the week after Trump took office for a second, non-consecutive term.
Trump’s office announced, then delayed, 25% tariffs against imports from Canada and Mexico, and enacted an additional 10% on goods from China. The postponed tariffs were put into effect at the beginning of March, with Canada and China imposing retaliatory tariffs against the United States.
Even though other economic effects have been hitting Americans hard in the first quarter of 2025 – from the skyrocketing and much-discussed price of eggs to headlines that spell out just how much actual monetary value a 10% decrease in the S&P 500 equates to in a month’s time – experts believe that the FOMC will not rock the boat come Wednesday.
As of Sunday evening, CME Group’s FedWatch tool predicts a 99% chance that the range for the key interest rate will be held at 425 to 450 basis points. As for the next meeting, scheduled to conclude May 7, the probability is already 84% that the rate will again stay the same.
That May percentage, it should be noted, has gone way up in favor of keeping the rate unchanged in just the last several days.
The first months of the new administration have shown that much can change in seven or eight weeks, but one area in which the Federal Reserve Board is not likely to budge is its long-standing commitment to curb inflation under 2%.
That goal is inching closer, but likely not to the level that might move the needle for the Fed at either this meeting or next. Consumer Price Index data released last week showed that the monthly CPI rose just 0.2% for February, down from 0.4% in January and also below the 0.3% that was predicted. Year over year, the CPI stood at 2.8% in February, two ticks lower than the 3.0% recorded in February 2024.
According to Samir Dedhia, CEO of One Real Mortgage, the recently observed moderation in CPI only stands to reinforce, not accelerate, the Fed’s desire to have inflation cool without a significant economic slowdown.
Dedhia says everything is going according to plan right now… but there is a catch when it comes to the tariff situation.
“Although price growth remains a concern in key sectors, such as housing and services, the latest figures indicate that the Fed’s policies may be achieving the desired effect,” Dedhia said in a statement last Wednesday.
“With inflation trending downward and the labor market holding steady, market participants will be watching closely for signals on potential shifts in monetary policy. At the same time, markets are also evaluating the potential impact of proposed trade tariffs by the current administration, which could introduce new inflationary pressures in the months ahead.”
So the periodic question rears its head again: For prospective homebuyers, is now the time to act?
Taking a look at St. Patrick’s Day week outside of the FOMC meeting, Yahoo! Finance says at least one item of note will drop on Tuesday: housing starts, which are predicted to report a 0.8% increase month over month for February, not massive but a marked improvement over a 9.8% decrease in January.
Existing home sales for February will be announced on Thursday after the Fed has made its March meeting decisions, but that rate is forecast to have decreased by 3.4% in February, a point-and-a-half improvement on January’s 4.9% drop.
In Dedhia’s view, recent trends bring “cautious optimism” for the housing and mortgage sectors.
“A softer inflation reading increases the likelihood of more favorable rate environments in the coming months, which could provide relief for homebuyers and spur activity in the real estate market,” Dedhia said. “However, the Fed will likely remain data-dependent, looking at future CPI reports and labor market conditions before making any major moves. Additionally, any inflationary effects from trade policy changes will be closely watched, as they could shift the current trajectory of price stability.”
Along with its decision on the key rate, the FOMC on Wednesday is scheduled to release the latest version of its Summary of Economic Projections, which provides a glimpse into the months and even years ahead, with a particular eye on the expected future rate of inflation.
The Mortgage Note will be chronicling all the developments from this week’s FOMC meeting and will be providing a wrap-up for you in Thursday morning’s coverage.