Mortgage

Federal Reserve signals it won’t raise interest rates at all this year

Fed elects to hold rates in latest meeting

At the conclusion of its March meeting, the Federal Reserve announced it is not raising the federal funds rate. In fact, the Fed is signaling it is done with the idea of rate hikes for the rest of 2019.

The Federal Open Market Committee’s statement indicated that the Fed is taking a cautious tone with the rates as it monitors the rate of inflation and other global economic conditions and developments.

 “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” The FOMC statement said.

The committee said it will maintain its target range for the federal funds rate at 2.25-2.5%. For the most part, everyone thinks this is a good move. Therefore, is an interest rate cut the next step?

This sentiment echoes the FOMC’s earlier statements from its January meeting earlier this year.

The FOMC statement explains that the Fed has looked at recent indicators pointing to slower growth in the first quarter of the year.

National Association of Federally-Insured Credit Unions Chief Economist Curt Long issued the following statement after the conclusion of the Federal Reserve’s March Federal Open Market Committee meeting:

“While the Fed's decision to hold rates steady comes as no surprise, the abrupt and sizable adjustments to its forecast were,” said Long. “Where the FOMC's median member forecast called for two rate hikes in December, that has been slashed to zero.”

Mike Fratantoni, the Mortgage Bankers Association’s chief economist, said it appears the Fed is done raising rates.

“As expected, the Federal Reserve left short-term rates unchanged at their March meeting,” he said. “The job market is quite strong, and even though wage growth has accelerated, inflation has not picked up and shows no signs of doing so. With that combination, Fed officials are comfortable leaving rates at their current level. If inflation were to increase, they might be forced to hike again, but it appears that we are at the end of the rate hiking cycle.

At its meeting, the Fed also announced it would slow the monthly reduction of its holdings of Treasury bonds from up to $30 billion to up to $15 billion beginning in May, confirming its intent to end its balance sheet runoff in September, if the economy and market conditions go as expected.

“The bigger news from this meeting was the clear signal that the Fed will stop allowing their balance sheet to shrink, and will begin to allow it to grow again starting this fall. Fed officials have noted that they would like to return the balance sheet to primarily Treasury assets, meaning that MBS will continue to roll off, with the proceeds being invested in Treasury securities,” Fratantoni said. “The Fed also noted the potential to sell “residual holdings” of MBS at some point, but that they would give plenty of notice before doing so. Over time, these changes could put some upward pressure on mortgage-Treasury spreads –  and ultimately – mortgage rates.”

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