March 2024 FOMC Meeting: No Change to the Fed Funds Rate

March 20, 2024
The Federal Open Market Committee (FOMC) announced no change to the Fed funds rate at its March 2024 meeting, leaving the range at 5.25% to 5.50%.

In the just-released FOMC statement, the Fed announced no change to the Fed funds rate. This was in keeping with consensus market expectations. The Fed guidance the market is looking for today will come from wording changes to the just-released policy statement, the fresh “dot plot” projections, and Fed Chair Powell’s press conference. The press conference will begin at the bottom of the hour. The Fed funds range remains set at 5.25% to 5.50%, a 23-year high and where it’s been for the past five FOMC meetings dating back to July of last year.

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 and anything that grabs the markets attention. Revisions to the consensus dot plot projections for when the first Fed funds rate cut is expected will get a lot of attention, too. If that rate cut moves out further than the July FOMC meeting the Treasury bond market will see more selling.

In his recent testimony to the legislative branches, Chair Powell stated the Fed is “not far” from being convinced that inflation is cooling at a pace that justifies lower policy rates. And that came after the January CPI surprise. Today’s events are key to making sense of that guidance and resetting where the Fed’s policy thinking is now.

What’s Next?

Investors are focused on whether the Fed will cut the Fed Funds rate three times in 2024, or just two. At the moment, the ongoing strength of the economy and job market demand has the Fed firmly in a holding pattern on rates. The rate cut projection then is a matter of conditions changing enough for the Fed to move off its “higher for longer” stance.

While expectations of a recession have significantly faded in favor of a soft landing, the possibility the Fed’s policy stance could still bring about that outcome are only two months’ worth of weaker economic data away. If that were to come about it would of course pull rate cut expectations forward again.

In the meantime, the markets are trying to understand the degree to which the supply chain recovery and pandemic stimulus explain the positive economic performance, despite the restrictive Fed policy. And when the impact of those unique factors may fade enough that the impact from the Fed policy more fully takes over. Has a recession only been delayed? If the Fed holds the terminal rate too long will a recession begin and become severe before the Fed cutting rates can address it?

Before the next FOMC meeting on May 1, we only have one additional month’s worth of fresh economic indicators to consider. Meanwhile, there’s the impact of higher term interest rates, war in the Middle East, the war in Ukraine, rising gas prices, China’s economic situation, a possible federal government shutdown, continuing jobs market strength, a slowing but still expanding economy, and the increased Treasury auction calendar. All of which factor into day-to-day market movement if not changing rate expectations.

As rates are published each day, this leaves the mortgage market subject to an unusually high degree of uncertainty. The point being, when the Fed is expected to begin rate cuts is far from the only influence on market movement.

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 risen in recent weeks and are still at risk of being pressured higher, in the short term as well as the intermediate.

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

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