Only one rate cut is coming in 2024
The Federal Reserve left rates unchanged despite some easing of inflation, but signaled that more cuts are likely next year.
Key points:
- The Consumer Price Index report showed inflation at 3.3% in May, down from 3.4% annual increases in March and April.
- Fed Chair Jerome Powell said the board still wants “to gain further confidence” before cutting rates.
- Mortgage rates are likely to remain elevated this summer, suppressing home sales.
While the economic data is trending in the right direction for potential homebuyers, it will still take some time for them to see mortgage rate relief.
As expected, the Federal Reserve chose not to make any changes to interest rates at its June meeting, and the board is now forecasting just one rate cut in 2024. While the rates set by the Fed don't directly affect mortgage rates, they do influence them.
Persistent inflation is to blame for the delay in rate cuts, with the latest Consumer Price Index report showing annual inflation at 3.3% overall — down from 3.4% in March and April, but still above the Fed's target inflation rate of 2%. While gas prices have dropped, that decline was offset by a rise in shelter costs, specifically rents.
The Fed's latest forecast is for one 25 basis point cut in 2024, with an additional 100 basis points in cuts in 2025 — that's lower than the previous forecast for 2024, but an increase for 2025.
In a press conference following today's meeting, Fed Chair Jerome Powell reiterated that the board does not want to cut rates until the economic data provides a clear signal.
"We want to gain further confidence, and certainly more good inflation readings will help with that," Powell said.
Powell also briefly addressed the housing market and acknowledged that high interest rates are having an outsized impact on housing relative to other parts of the economy. The best thing the federal government can do, he said, is to bring inflation down so that rates can come down.
What this means for summer home sales
Exactly when the 2024 rate cut will happen remains uncertain, said Lawrence Yun, chief economist at the National Association of Realtors.
Yun echoed Powell's statements, noting that "inflation is moving in the right direction, but it is not quite at the point for the Fed to cut interest rates."
With mortgage rates staying around 7% — while home prices keep rising — it's expected to be a relatively slow summer despite increases in inventory, said Lisa Sturtevant, chief economist at Bright MLS.
"The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop," Sturtevant said.
"Some homebuyers who have been sidelined by affordability challenges are going to wait until rates come down to buy. Increasingly, home sellers may have to do more negotiating to attract offers."