In its first gathering of the year under the Trump administration, the Federal Reserve, at the conclusion of its Federal Open Marketing Committee (FOMC) meeting, decided to hold the fed funds rates steady at 4.25% to 4.5%. Their decision comes after the Fed cut rates three times starting in September 2024, pushing the federal funds rate down by one full percentage point.
“In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent,” said the Fed in a statement. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Factoring heavily into the Fed’s decision-making, the FOMC sought to achieve maximum employment and inflation at the rate of 2% over the longer run.
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” said the Committee in a release.
Despite the near full percentage point drop in rates, the 30-year fixed-rate mortgage (FRM) has remained in the 7%-range, with the latest Freddie Mac Primary Mortgage Market Survey (PMMS) showing the 30-year FRM at 6.96%.
“Mortgage rates have remained stubbornly high, even after two rate cuts by the Fed in September and December last year. In fact, there has been a lot of frustration as mortgage rates have actually increased after the central bank lowered the target federal funds rate,” said Lisa Sturtevant, Bright MLS Chief Economist. “The average rate on a 30-year fixed rate mortgage pushed past 7% earlier this month and remains at its highest level since July. Buyers and sellers who were hoping for rates to fall in early 2025 are going to be disappointed. Some home sales activity that we expected in the first quarter of 2025 may be pushed until later in the year. But as rates remain elevated, and home prices continue to rise, there will be some buyers who are going to be pushed out of the housing market permanently.”
In December, an estimated 256,000 jobs were added nationwide, cutting the unemployment rate from 4.2% to 4.1%.
“The FOMC sees solid growth, a strong job market, and inflation still above the Fed’s target, indicating that its current target for the federal funds rate is about right, holding back the economy a bit to move inflation down over time,” said Mortgage Bankers Association (MBA) SVP and Chief Economist Mike Fratantoni. “Quantitative tightening continues without changes, with their holdings of Treasuries and MBS continuing to slowly roll off passively. With no news in the statement, every word from upcoming speeches will be closely parsed to determine whether this is just a pause before another cut or two or whether this level of the federal funds rate will be the low point for this cycle. MBA is forecasting one additional cut this year. With the Fed on hold, we do expect that longer-term rates, including mortgage rates, will also stay within a narrow range for the foreseeable future.”
CNN reports that Fed officials “gave no indication in their post-meeting statement that a resumption of rate cuts is likely at the next meeting in March.”
“The progress toward 2% inflation has stalled out, and the Fed knows it,” said Greg McBride, Chief Financial Analyst at Bankrate. “It will take a run of good inflation data to get us there, whenever that may be.”
Tim Lawlor, CFO Officer at Kiavi, added, “For many consumer mortgages, the benchmark rate is the 10-year treasury rate, whereby originators and investors are looking at a spread over that 10-year rate to price retail mortgages. Throughout 2024 the market’s expectation of what the long-term Fed rate would be drove significant moves in the 10-year. During the spring and summer, the treasury yield began to come down under the assumption of a potential increase in rate cuts and the velocity of cuts. That drove the 10-year to below 3.75% in September which translated to mortgage rates moving into the low 6% range. However, as more economic data has come out and informed the Fed’s long term rate outlook, the markets are currently bearish and the 10-year rate is back to where it was in Q1 2024 and consumers are looking at 7%+ mortgages again. While we may not see the same velocity of change in 2025, we should expect some slow decline in rates as the Fed exercises some degree of rate cuts.”
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