For the eighth straight meeting, the Federal Reserve Open Market Committee (FOMC) elected to hold rates steady. As a result, the benchmark federal funds target rate will remain between 5.25% and 5.5%, as it has since July 2023.
In a recent conversation with Builder, NAHB chief economist Rob Dietz shared the organization’s projection that the Fed will cut rates once before the end of 2024—in December. He noted, though, that other market indicators suggest the first rate cut may occur in September.
“The Fed holding rates steady at this meeting was not a surprise. After all, they’ve told us in the past that they don’t want to shock financial markets and will try to communicate their move in advance,” says Zonda chief economist Ali Wolf. “It does appear, though, that September is on the table.”
Wolf says chairman Jerome Powell’s messaging in the press release announcing the rate pause that ‘the economy is moving closer to the point’ that they will be able to move their policy rate is telling.
“He explicitly left September on the table, assuming the ‘totality’ of the data continues to move in the right direction,” Wolf says.
In a statement announcing the decision, the FOMC said recent indicators suggest the economy has continued “to expand at a solid pace.” Job gains have moderated, and the unemployment rate—while still low—has moved up in recent months. Inflation has continued to ease over 2024 but still remains above the Committee’s long-term target of 2%.
“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance,” the FOMC said in its news release. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
The recent June jobs report from the U.S. Bureau of Labor Statistics revealed the unemployment rate ticked up to 4.1%, the first time the rate has been above 4% since 2021. Total nonfarm payroll employment increased by 206,000 in June, while jobs figures were downwardly revised by a combined 111,000 for April and May. On Tuesday, the BLS reported that the hiring rate in the economy slowed to a level not seen since 2014.
On the inflation front, the Personal Consumption Expenditure (PCE) index in June eased to 2.5%, its lowest reading since March. The Consumer Price Index (CPI), another measure of inflation, averaged 3% annual gains in June. Both measures, while lower than recent months, sit above the Fed’s target of 2%.
After three good inflation reports since May, Wolf says if August and September show lower inflation levels—and the labor market does not pick up steam—a September rate cut from the Fed “is all but guaranteed.”
When thinking about future rate cuts, Wolf says it is important to remember that mortgage rates do not need to wait for the Federal Reserve to come down.
“Mortgage rates will come down once bond investors believe the Fed will cut rates soon, and I think we are seeing that now; mortgage rates are down to a five-month low,” Wolf says. “Rates are still in the high-6s but are moving in the right direction to help with affordability.”
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