The Federal Reserve held its benchmark interest rate steady at a target range of 3.5% to 3.75% on Wednesday, marking its third consecutive pause. With higher inflation fueled by geopolitical tensions and a resilient labor market, the central bank left no room for a rate cut — keeping mortgage rates elevated for the foreseeable future.
The decision arrives just as the Department of Justice (DOJ) dropped its investigation into the Fed regarding Chair Jerome Powell’s congressional testimony on a $2 billion headquarters renovation project. The DOJ’s move clears a major political obstacle for Kevin Warsh’s confirmation to succeed Powell, with Warsh advancing to a full Senate confirmation vote after clearing the committee stage on Wednesday.
“This is the Fed’s final meeting before Jerome Powell’s term as Chairman ends in May, closing a chapter that began in 2018 and included the pandemic, the inflation surge, and the fastest tightening cycle in decades,” George Ratiu, vice president of research at the National Apartment Association, said in a statement.
With the 10-year Treasury yield hovering around 4.3%, investors continue to demand compensation for inflation risk. Policymakers will likely “stay cautious in the months ahead, even under new leadership, because the next inflation flare-up is a risk they can’t ignore,” Ratiu added.
Recent economic data justifies the Fed’s caution. The Consumer Price Index jumped 3.3% in March, up from 2.4% annualized growth in February. The all-items index rose 0.9% month over month, marking the largest increase in nearly four years. Meanwhile, theU.S. Bureau of Labor Statistics reported that nonfarm payrolls grew by 178,000 in March and the unemployment rate held steady at 4.3%.
“Overall, the Fed appears poised for a continued ‘wait and see’ approach,” Charles Goodwin, vice president and head of bridge and debt-service-coverage ratio lending at Kiavi, said a statement. “Expect mortgage rates to stay in the current ~6.3% range for the foreseeable future. The inflation or labor narratives would need to change meaningfully to see movement in either direction.”
At HousingWire‘s Mortgage Rates Center, 30-year conforming loan rates averaged 6.39% on Wednesday morning, down 3 basis points from last week. Rates for 30-year Federal Housing Administration (FHA) loans dropped 2 bps to 6.13% and jumbo loan rates fell 3 bps to 6.26%.
Even a surprise rate cut wouldn’t guarantee immediate relief for borrowers due to secondary market dynamics, according to Dave Meyer, chief investment officer at BiggerPockets.
“MBS prices are likely to be very sensitive to inflation numbers in the coming months, and markets will likely want to see several months of geopolitical stability and lower inflation prints before bringing down yield expectations,” Meyer said. “The best path to sustainably lower mortgage rates is winning the fight against inflation.”
Investors largely expect the Fed to maintain current rates through the end of the year, according to the CME Group‘s FedWatch tool. First American senior economist Sam Williamson noted that markets have already priced in the inflation risk.
“Earlier this year, investors expected at least one rate cut by year-end, potentially as early as April, as tariff-related price pressures eased and disinflation resumed,” Williamson said. “Since then, the market-implied path has moved higher amid firmer inflation and energy-market uncertainty, with no cut now the base case for year-end.”
The rate outlook hinges on two diverging paths, Williamson added.
“Oil-market disruptions could fade, reopening the case for cuts, or the shock could begin to weigh more visibly on real incomes, hiring and output growth. Until that picture becomes clearer, markets are no longer treating easing as the default path.”
Editor’s note: This is a developing story and will be updated.