Federal Reserve’s Rate Cuts: Insights from Recent FOMC Meeting
The Federal Reserve’s latest Federal Open Market Committee (FOMC) meeting brought forward some contentious discussions regarding potential interest rate adjustments. According to the Summary of Economic Projections (SEP), a prevailing sentiment among Fed officials suggests that at least two interest rate cuts are anticipated this year. This projected number, however, indicates a reduction from earlier projections made in December.
Additionally, economic growth expectations for Gross Domestic Product (GDP) in 2025 have been revised downward. The median growth estimate has fallen from 2.1% in December to 1.7% this March. Furthermore, forecasts for the Personal Consumption Expenditures (PCE) index—the Fed’s preferred metric for inflation—have increased from an expected 2.5% to 2.7%.
Fed Chair Jerome Powell characterized the current economic forecasts as subject to “really high uncertainty,” emphasizing the unpredictability of upcoming economic changes.
“What would you write down? It’s really hard to know how this is going to work out,” Powell remarked. “We think our policy is in a good place. We think it’s in a good place where we can move in the direction we need to. But in the meantime, it’s really appropriate to wait for further clarity,” he added.
Cautious Approach to Policy Easing
The notion of a cautious approach may not provide much reassurance to professionals in the housing market, who have faced considerable challenges following the inflation surge and the Fed’s responsive rate hikes. The Federal Reserve Bank of New York has reported a dramatic decrease in residential mortgage origination volume—plummeting from $1.22 trillion in Q2 2021 to about $323.53 billion by Q1 2023. The recovery trajectory has only reclaimed a fraction of this lost volume in the intervening months.
Emanuel Santa-Donato, senior vice president and chief market analyst at Tomo Mortgage, noted there were no surprises stemming from the Fed’s recent communications. He stated, “The new SEP confirms what markets expected — rate cuts are coming, but don’t expect them to be fast or aggressive.” He further indicated that the Fed’s outlook reinforces the notion that Powell remains unhurried in relaxing monetary policy.
“With inflation expected to settle at 2.7% and unemployment projected to increase to 4.4%, the Fed sees some room for cuts, but the message is clear: Any relief from the Fed will be slow and measured,” he said.
In this context, mortgage rates continue to pose a significant barrier for potential homebuyers, despite a recent decrease in the average 30-year fixed rate from a peak of 7.87% in October 2023, down to 6.80% this week, as reported by HousingWire’s Mortgage Rates Center.
Rob Cook, vice president at Discover Home Loans, highlighted the psychological barrier homeowners face regarding current mortgage rates given the historically low rates seen during the pandemic. “Most homeowners who had mortgages took advantage of refinancing at those low rates,” Cook explained. “This has greatly reduced the supply of houses on the market, as existing homeowners are reluctant to move and replace their current low mortgage rates with today’s higher rates.”
Cook also observed that while several factors influence mortgage rates, trends in economic data relating to inflation and employment are crucial for assessing future Fed policy adjustments. “As the Fed gains confidence that inflation is under control and/or sees signs that the job market is softening, that would make it more likely for the Fed to cut rates,” he elaborated.
Impending Tariff Deadlines and Economic Implications
A significant date looms on April 2, when tariffs instituted by the Trump administration are set to take effect. These tariffs would obligate the U.S. to impose tariffs matching those placed on its exports by other countries, potentially disrupting numerous industries, including home construction.
Despite uncertainties surrounding these trade policies, Odeta Kushi, deputy chief economist at First American Financial Corp., suggests that a deceleration in economic activity may not adversely affect home sales. “The Fed typically responds to a slowing economy by lowering interest rates,” Kushi remarked.
Such actions could encourage more homebuyers to enter the market. However, Santa-Donato warns that a drop in rates may lead to increased competition, which might not ultimately improve affordability for buyers. “The SEP confirms that the Fed sees a slower-growth economy ahead, but home prices won’t necessarily follow that same trajectory,” he suggested. “If rates do drop meaningfully, competition will pick up, and in a market with limited supply, affordability may not improve as much as buyers hope.”
In summary, the Fed’s forecasting reflects a period of heightened uncertainty, with evolving economic signals influencing both policy direction and market behavior. Powell emphasizes the need for patience and further observation, as recent consumer confidence surveys indicate a notable increase in perceived economic uncertainty. “There have been plenty of times where people are saying very downbeat things about the economy and then going out and buying a new car,” Powell acknowledged. “But we don’t know that that will be the case here.”
