FOMC Announces a 0.250% Fed Funds Rate Hike

July 26, 2023

In the just-released FOMC statement, the Fed announced a 0.250% Fed funds rate hike. This was in line with consensus expectations. The guidance the market is looking for and is most sensitive to today will come from Chair Powell’s press conference which will begin at the bottom of the hour. Today’s hike puts the Fed funds range at 5.25% to 5.50%.

Changes to the policy statement will set the stage for the press conference so we should listen to commentary about any unexpected changes in that wording. Given recent Fed governor commentary any clearer indications of another rate hike in September, or another pause, are the primary focus for market action today.

What’s Next?

The ongoing strength of the economy and modest easing of job market demand are changing expectations of a recession. With today’s guidance digested, the bond market will continue to adjust its forecast of when a terminal rate will be reached and how long the Fed will stay there before a first possible rate cut. Which is to say, “higher for longer” still needs definition in the market’s eye.

The Fed’s FOMC calendar has the next meeting on September 20. There will not be another policy action until that date, almost a full two months out leaving the market to digest two months’ worth of economic and jobs data and to cipher Fed Governor speaking engagements. The most notable of those being Chair Powell’s speech at the annual Fed symposium in Jackson Hole, Wyoming, August 24 – 26.

That exercise will be a bumpy one, no doubt, as the monthly economic indicator data paints the picture of the speed and breadth of the effect of previous rate hikes and bond runoff.

What Do Borrowers Do Now?

Originators should explain to borrowers looking to finance the purchase of a home that the current mortgage rate market remains exposed to greater-than-typical levels of uncertainty. Mortgage rates have nearly reached the levels they peaked at last November over the past few weeks. Clearly demonstrating this volatility over the past several weeks.

The available housing inventory is still tight and will remain so for years to come. After finding a suitable home for purchase, the best course of action is to secure financing quickly to avoid the worst possible market volatility that could upend those plans.

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