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The Federal Reserve Open Market Committee (FOMC) elected to hold rates steady at its second meeting of 2024, marking the fifth consecutive decision to pause on rate activity. The decision to hold keeps the target range of the federal funds rate between 5.25% and 5.5%.

“The pause more or less indicates status quo, but the FOMC believes progress is continually being made towards their dual mandate objectives. While the economy is running hotter than expected, nothing seems to change the direction of their plan,” says Nik Scoolis, manager, housing economics, at Zonda. “Further, the FOMC currently believes we are at peak rates, so any hike would be a change of direction and surprise.”

From March 2022 through the summer of 2023, the Federal Reserve increased rates 11 times. While it has elected to pause rates, the FOMC indicated rate cuts may begin later in 2024. In economic projections released Wednesday, Fed officials said they anticipate three rate cuts this year. During the most recent Zonda New Home Market Update webinar, chief economist Ali Wolf shared Zonda’s forecast of two rate cuts in 2024.

“While there is not a specific timeline given for rate cuts, the year-end projection implies 75 basis points to be cut before 2025,” Scoolis says.

The FOMC said recent economic indicators continue to suggest the economy is expanding at a “solid pace.” Job growth has remained strong, unemployment has remained low, and inflation has eased but remains elevated above the Fed’s target of 2%.

“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the FOMC said in a statement announcing the rate pause. “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

After peaking at 9.1% in June 2022, the consumer price index measure of annual inflation has eased significantly, falling to 3.2% in February. The measure has oscillated between 3.1% and 3.4% in recent months.

At the same time, the job market has remained relatively resilient. The economy added 275,000 jobs in February and 229,000 jobs in January. While the unemployment rate ticked up to 3.9% in February, the rate has stayed below 4% consistently for the last two years.

“The Fed will want to see further cooling to more sustainable levels. Inflation continues to run well above the 2% target and the job numbers are surprising to the positive, however strong job growth alone is not seen as preventative to a rate cut,” Scoolis says.

The FOMC said it “does not expect it will be appropriate to reduce the target range” of the federal funds rate until its has gained “greater confidence that inflation is moving sustainably toward 2%.”

“The Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the FOMC said in its statement.