Fed Meeting Today: FOMC Keeps Rates Steady; Projects Just One Cut This Year; Powell Speaks; Other News From the June Meeting (2024)

Today's Fed Meeting

Officials’ collective forecast for interest rates now implies only one quarter-point cut by the end of 2024, a significant shift from earlier this year. In March, the Fed penciled in a total of three quarter-point cuts.

Fed officials also now forecast that inflation will end the year higher than initially predicted.

In his speech, Chairman Jerome Powell said it’s a “balancing act” to lower inflation, manage the “very strong” labor market, and keep the economy growing.

Higher interest rates are weighing on home-buying activity and having a “significant effect” on the housing market, but it could take years for rents to normalize, Federal Reserve Chair Jerome Powell said.

“[The] housing situation is a complicated one,” Powell said Wednesday.

Increases in the central bank’s target for the federal-funds rate have pushed up the cost of mortgages, which in turn has dissuaded potential homebuyers. The average 30-year fixed mortgage rate is hovering around 7%, according to June 6 data from Freddie Mac, up from 6.6% at the end of 2023 and well above the record lows notched in 2021.

Pending home sales dropped 7.7% in April to the lowest level in four years, according to the National Association of Realtors.

Renters have been under pressure as well. An index of the overall cost of shelter climbed 5.4% from a year earlier in May, according to the latest consumer price index data. The monthly increase in costs was 0.4% in May.

Economists and Fed officials had hoped to see housing inflation ease this year as rents normalize from a postpandemic surge, but it is taking much longer than expected for lower rents to show up in inflation data.

Powell said Wednesday it may take several years before housing inflation normalizes. He noted that when market-based rents go up sharply, as they did when the economy reopened after the pandemic, that plays into rents for existing tenants relatively slowly, as they renew their leases, while it affects new tenants more quickly.

“We've found now that there are big lags, so there's sort of a -- there's a bulge of high past increases in market rents that has to get worked off, and that may take, you know, several years,” Powell said.

“The best thing we can do for the housing market is to bring inflation down so that we can bring rates down so that the housing market can continue to normalize.” he added.

Federal Reserve officials continue to maintain their bias toward interest-rate cuts.

Although progress on taming inflation stalled during the first quarter, Chair Jerome Powell said Wednesday that no one on the Federal Open Market Committee has rate increases penciled into their base case economic forecast at the moment.

“We've always been pointing to cuts at a certain point. Not to eliminate the possibility of hikes, but no one has that as their base case,” Powell said during Wednesday’s news conference.

Monetary policy is restrictive, Powell said, noting that, ultimately, if Fed officials just set policy at a restrictive level, eventually there will be a “real weakening” in the economy. The FOMC maintained the target range for the federal-funds rate at 5.25% to 5.50% on Wednesday.

“What we've been getting is good progress on inflation with growth at a good level and with a strong labor market. Now, ultimately, we think rates will have to come down to continue to support that,” Powell said. “But so far, they haven't had to. And that's why we're watching so carefully for signs of weakness.”

Powell added that officials haven’t seen any sudden weakness emerging so far. Instead, he said officials have seen what they’ve wanted to see: gradual cooling in demand, gradual rebalancing in the labor market, and progress on bringing down inflation.

Federal Reserve officials slightly raised their forecast for long-run interest rates on Wednesday, prompting questions about how restrictive monetary policy currently is.

Chair Jerome Powell said that the long-run, neutral rate of interest is a theoretical concept that can't be directly observed. And while he noted that it is a very important concept in economics and plays into the Fed’s mandate, it doesn't really help policymakers in the near term. “In the meantime, we're making policy with the economy that we have with the distortions that we have,” Powell said.

As time has gone by, the question of how restrictive monetary policy has become one that everyone is asking, he said, noting that Fed officials are asking it too.

“My answer has been that policy is restrictive,” Powell said. “The question of whether it's sufficiently restrictive is going to be one we know over time.” He said he believes the evidence is “pretty clear” that monetary policy is restrictive and is having the effects that officials would hope for in reining in demand and bringing the economy, and inflation, back into better balance.