Buoyed by reports suggesting the cooling of inflation and the jobs market, the Federal Reserve Open Market Committee elected to keep rates steady, forgoing an additional rate hike.

“We decided to maintain the target rate while continuing to reduce our security holdings. We have not decided at this point what the appropriate rate is,” Federal Reserve chair Jerome Powell said in a question-and-answer session following the announcement. “We are maintaining the rate while waiting for further data. Real interest rates are positive now, which we need for things to be sufficiently restrictive. Economic activity is strong than expected, so we need to keep rates at restrictive levels.”

The decision to maintain the federal funds rate between a target range of 5.25% and 5.5% follows a 25-basis point rate increase in July. Since March 2022, the Federal Reserve has increased rates 11 times.

“This particular Fed is extremely data-driven and has been consistent in wanting to see changes in real numbers before they react,” says Nik Scoolis, manager, housing economics, for Zonda. “They want to ensure that changes in the data are permanent and not just fluctuations. We can glean from the dot plot that the Fed expects rates to stay higher for longer in 2024 than they did a few months ago.”

According to Scoolis, the Fed has indicated one more rate hike is “likely before the end of the year” and notes rates are likely to remain elevated for most of 2024. Current signals from the Fed are two rate cuts in 2024 after the additional rate hike in 2023, he says.

“Rates staying higher for longer isn’t what builders necessarily want to hear, as higher rates negatively impact affordability as well as the cost of borrowing for development,” Scoolis adds.

In a news release, the Federal Reserve said job gains have slowed in recent months “but remain strong” while inflation remains elevated. The August jobs report from the Bureau of Labor Statistics (BLS) was the second straight month of job growth below 200,000. The BLS reported consumer prices increased 3.7% on a year-over-year basis in August, an increase from 3.2% in July but well below the peak level of inflation of 9.1% from July 2022. Despite the improvement, inflation still remains elevated above the Federal Reserve’s target of 2%.

Powell said the labor market is “coming more into balance,” and a soft landing “is still a plausible outcome” for the economy.

The Federal Reserve said it will take into account the tightening of monetary policy, the lags with policy actions and impacts on the economy, and economic and financial developments in its evaluation of additional future action. The Committee is prepared to adjust the “stance of monetary policy as appropriate” if risks emerge to challenge its goals of 2% inflation.

The Federal Open Market Committee is next scheduled to meet Oct. 31 and will announce its next interest rate decision Nov. 1.