Fed Keeps Rates Flat, Signals a September Cut
But it still comes down to what the data will look like, and disappointing reads could put cuts off.
The Federal Open Market Committee of the Federal Reserve did exactly what most observers expected today by keeping the federal funds rate range where it has been between 5.25% and 5.50%. The Fed will also continue reducing its holdings of Treasury securities as well as agency debt and agency mortgage-backed securities.
Some of the communications sounded more optimistic about a September rate cut, but still with the warning that a change in conditions could change all that.
The more formal statement included, “The Committee 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.”
For the other side, Chair Jerome Powell, in answering someone’s question during the press conference following the FOMC meeting, gave an example of a case in which the Fed might find it appropriate to consider a rate cut in September and one in which it wouldn’t.
“If we were to see for example inflation moving down quickly, more or less in line with expectations, growth remains, let’s say, reasonably strong, and the labor market remains consistent with its current condition, then I would think a rate cut could be on the table at the September meeting,” Powell said. “If inflation were to prove stickier and we were to see higher rates of inflation, disappointing readings, we’d weight that along with the other things. It’s not going to be just any one thing.”
Some in the CRE industry were disappointed with the lack of a rate cut today or a more definite promised one for September.
“The FOMC did not change its target for the federal funds rate but did shift its statement to acknowledge that inflation is slowing, unemployment is rising, and that there are now more balanced risks to the economy,” wrote Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni in a commentary on the meeting. “While the Fed still hopes for a slower rate of inflation, there is a greater risk now that keeping monetary policy overly tight for too long could lead to unnecessarily higher unemployment.”
“While markets continue to believe that the Fed is poised to reduce the discount rate in September, the data-dependent Fed appears to want even more data before telegraphing a definitive timing for this move,” wrote from Marty Green, principal at mortgage law firm Polunsky Beitel Green. “While a September cut is still very much in the cards, it doesn’t appear to be guaranteed at this point. But it sure feels like the Fed believes that the rates are getting very close to being ‘higher for long enough’ instead of ‘higher for longer.’”