Cut or hold: What action will the Fed take today?

Latest decision on rates to be announced this afternoon

Cut or hold: What action will the Fed take today?

The Federal Reserve is expected to hold its key rate at its current level at the conclusion of its June 11-12 meeting and wait a little longer to see how economic trends are playing out, according to First American deputy chief economist Odeta Kushi.

Investors are “overwhelmingly expecting” rates to stay where they are this month, Kushi said, with an approximate 50-50 chance that rates will then fall in September.

Kushi said Fed chair Jerome Powell’s press conference after the announcement and the central bank’s projections, also to be released this afternoon, would offer key insights into the Fed’s outlook on rates and how it’s assessing the current landscape.

“Policymakers are likely to back away from a forecast of three rate reductions this year, but it’s unclear whether they will pencil in one or two cuts,” she said.

The central bank’s future approach is likely to be impacted by a multitude of different considerations, she said.

“It’s the full economic picture, not a singular factor, that will guide their decision,” she said. “The FOMC will hold off on making any changes to the federal funds rate until inflation, and the factors that drive inflation, such as a more balanced labor market, make significant and sustained progress toward the Fed’s target, or there’s a significant decline in economic activity or worrisome weakness in the labor market.”

All this means the Fed’s announcement today is unlikely to have a big impact on mortgage rates – barring a surprise, according to Kushi.

“If the press conference and projections indicate a more hawkish tone than markets anticipate in the June meeting, mortgage rates may move up further, or vice versa,” she said. “Lower mortgage rates would be welcome news for potential home buyers facing one of the least affordable markets in over three decades.

“Housing affordability is a function of three factors: mortgage rates, household income, and nominal house prices. While household incomes are rising, potential home buyers in today’s market are feeling the one-two punch from rising house prices and higher mortgage rates amid still low, but rising supply levels. A slower pace of price growth, lower mortgage rates, and continued increases in supply can make for a more affordable housing market.”

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