The Federal Reserve Open Market Committee (FOMC) once again elected to hold rates steady. As a result, the Fed’s benchmark federal funds target rate will remain between 5.25% and 5.5%, as it has since July 2023. Overall, the Fed has elected to hold rates steady for seven straight meetings.

In a dot-plot released in conjunction with the rate decision, the Federal Reserve signaled just one rate cut is likely in 2024, as opposed to the three cuts they predicted in March and at the end of 2023.

“At the beginning of the year, we told our National Outlook clients that we saw a 75% probability of two rate cuts this year,” says Zonda chief economist Ali Wolf. “We’ve dropped that probability down 60% as new information came in. Our base case, however, is that we will see one cut by the end of the year, with an anticipated date of September or December.”

In its statement announcing the decision, the FOMC noted economic activity has continued to expand at a “solid pace.” The Fed noted jobs gains have remained strong and the unemployment rate has remained low, while inflation has eased “but remains elevated.” In recent months, there has been “modest further progress” toward the FOMC’s goal of 2% annual inflation.

“The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the year,” the FOMC said in its news release. “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

While inflation has cooled from annual increases of 9% in 2022, the FOMC “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

“At the end of last year, the Fed felt fairly comfortable that they’d be on track to do a couple rate cuts this year. Inflation was cooling, and the labor market was growing but slowing,” says Wolf. “At the beginning of the year, we had three inflation reads that showed inflation picking up versus slowing further. That delayed any plans of a cut.”

In data released Wednesday, the Consumer Price Index for all items less food and energy was up 0.2% on a month-over-month basis in May and 3.4% on a year-over-year basis. Inflation has stabilized at a rate between 3% and 4% dating back to 2023.

“We’ve now had two months—May and June—where the inflation data looks back on track. We know that policymakers want to be able to track a trend in the data versus react on just one or two months of data, but so far the data looks promising of a cut coming later this year,” says Wolf.

In the labor market, employment increased by 272,000 in May, while the unemployment rate was 4%. The May jobs report also included downward revisions for March and April growth to 310,000 and 165,000 from 315,000 and 175,000, respectively.

In the housing market, mortgage rates move in real-time in response to announcements from the Federal Reserve. Wolf says rates dropped lower on the latest inflation reading and “stay below where they started the day on the new information from the Fed showing one rate cut is still likely this year.”

“For the home building industry, builders should celebrate that some housing affordability could be on the way, but one cut in 2024 doesn’t tell us low interest rates are returning to the market anytime soon,” says Wolf.

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