Fed leaves rates unchanged with economy ‘in a solid position’
The Federal Reserve’s current strategy is “the best thing we can do for the housing market,” Fed Chair Jerome Powell told reporters on June 18.
In June 18 remarks that noted the housing market has a "longer-run problem and also a short-run problem," Federal Reserve Chair Jerome Powell said sticking to the current interest rate strategy will be the best path forward.
The Fed opted to leave short-term interest rates unchanged for the time being during its mid-June meeting, keeping fund rates in the 4.25-4.5% range with the possibility of cuts later this year still on the table.
"Despite elevated uncertainty, the economy is in a solid position," Powell said. "We believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments."
When asked whether the sluggish housing market was among the data points indicating a weakening economy, Powell said that while housing shortages need to be addressed, the overall economic picture shows a solid labor market with slightly elevated inflation.
"Basically, the situation is we have a longer-run shortage of housing, and we also have high rates right now," Powell said. "I think the best thing we can do for the housing market is to restore price stability in a sustainable way and create a strong labor market."
A forecast adjustment: While interest rates held steady, the Fed slightly revised its forecast compared to its March assessment. The Fed now anticipates slower economic growth and slightly higher unemployment and inflation through 2027. For now, the Fed will continue to wait and see which direction labor and inflation data will take before making a move.
The updated forecast indicates it's still possible that there will be two quarter-point rate cuts by the end of the year, and the markets appear to be pricing in those cuts to happen in September and December. But there are many other variables still impacting economic uncertainty, according to Danielle Hale, chief economist at Realtor.com.
"It's worth noting that rising tensions in the Middle East now join ongoing trade talks as yet another factor bumping uncertainty higher, diminishing the shelf life of economic projections," Hale wrote of the Fed's June 18 decision.
What to watch: Agents, homebuyers and sellers should monitor inflation and labor market shifts over the summer, according to Lisa Sturtevant, chief economist at Bright MLS.
"If inflation comes down even slightly this summer while job growth remains steady, the Fed will cut rates in September," Sturtevant said. "However, mortgage rates could fall even before the rate cut in response to these indicators. A decline in mortgage rate later this summer could give a jolt to the housing market, bringing buyers off the sidelines to take advantage of the dip in rates and expanded inventory."