What the July FOMC meeting statement said
The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, left the short-term policy rate unchanged at a range of 5.25 to 5.5 percent.
In July 2023, the Fed raised rates for what is likely to be the last time in this tightening cycle that began in March 2022. Recent inflation and labor market data have softened somewhat faster than the Fed expected in June, which the Fed acknowledged in its statement as “some further progress” versus “modest further progress” in June. The Committee also acknowledged “risks to both sides of its dual mandate” whereas in June, the statement only highlighted “inflation risks.”
Investors are nearly unanimous in expecting a Fed rate cut in September. A rising unemployment rate and moderating job growth combined with further slowing inflation have convinced markets that policy could be loosened a tick. Although inflation is not yet all the way back to the 2% target, progress continues to be made, which the Fed acknowledged. However, the Committee left unchanged the statement that, “[It] 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 percent.”
Inflation and labor market data both matter
This means that the inflation and unemployment data over the next few months will continue to be consequential for interest rates, including mortgage rates. For home shoppers and sellers, I continue to expect that peak mortgage rates are in the rear-view, but volatility remains a risk, complicating moving decisions for home sellers, homebuyers, and renters alike. While the Fed meeting statement stopped short of saying a rate cut might be appropriate soon, in the press conference that followed the meeting, Chair Powell acknowledged that a rate cut was discussed at the July meeting among the participants’ range of views. The meeting minutes, due out in a few weeks, will shed further light on this discussion. Furthermore, Chair Powell noted that a rate cut could be on the table in September, especially if the data evolve as hoped for.
What this means for home buyers and sellers
So far in 2024, homeowners have been cautiously optimistic about selling, with greater numbers listing homes for sale compared to last year nudging the market in a buyer friendly direction. At the same time, mortgage lock-in remains a constraint for some would-be sellers, with very little adjustment in the share of mortgage holders with low outstanding rates and still relatively high mortgage rates may be keeping some buyers sidelined as time on market grows. June data on pending home sales improved, however, suggesting that buyers continue to be sensitive to interest rates and will respond as lower borrowing costs bring more options back into the range of their budgets