Was the Fed's latest statement positive or negative for the mortgage market?

Central bank left rates unchanged yet again on May 1

Was the Fed's latest statement positive or negative for the mortgage market?

The Federal Reserve gave little indication that interest rate cuts are on the way in last week’s announcement – but there was certainly positive news to be found in chair Jerome Powell’s statement, not least the fact that a resumption of rate hikes appears to be off the table for now.

That’s according to Melissa Cohn (pictured), regional vice president at William Raveis Mortgage, who told Mortgage Professional America that the central bank does not currently appear in any mood to start bringing rates higher despite inflation and labor market surprises in recent weeks.

“I was pleasantly surprised by the fact that he reiterated that the next move is not going to be a rate cut, and the market is rallying nicely off that news,” she said. “The good news is that the Fed did not raise rates, and that they were stoic in their battle to continue to fight inflation, but at the same time were somewhat dovish in some of their moves.”

Among those positive steps was the Fed’s announcement that it will slow the pace of balance sheet shrinkage starting in June, a move that’s likely to ease pressure on money-market rates.

What’s next for the Fed: hike or cut?

Speculation had risen in the wake of recent news showing inflation on the rise that the Fed could adopt much more aggressive language in last week’s announcement than it has in recent statements.

It said it “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals” – but Powell struck a much more conciliatory tone at the ensuing press conference.

“I take it as good news because I think people were very afraid that Powell was going to be very hawkish and say ‘You have to be careful, inflation is not moderating at the pace we like. It increased in the last month, and the next move could be a rate hike,’” Cohn said. “But he was very careful not to say that – and that’s good news for the rate market.”

That’s not to say further rate hikes are an impossibility – particularly if inflation begins to balloon as it did in 2022. Still, Cohn isn’t counting on the Fed moving to bring its funds rate higher anytime soon.

“I would say that anything is theoretically possible. We learned that lesson when the pandemic started, but I’d say this is an election year and the odds of the Fed actually hiking rates at this point, and this year, are probably highly unlikely,” she said.

Expectations of a summer rate cut rapidly faded amid a resilient US labor market and that unexpected inflation uptick, with September at the earliest likely to mark a “launch point” for the Fed to begin lowering rates, according to Cohn.

What does the Fed’s latest decision mean for the housing market?

Mortgage rates have  continued to hover above 7% in recent weeks, although homebuying has continued at a decent clip across many US markets – and last week’s Fed announcement is unlikely to make much of a difference either way on Americans’ plans to buy, she added.

Read more: Mortgage rates up for fourth consecutive week

“Mortgage rates have gone back up to multi-year highs over the course of the past few weeks. So the fact that the 10-year bond yield is rallying and not going up, I think, is good news for the real estate market,” she said. “We need lower rates to keep the real estate market going. The real estate market really keeps the economy going. So I think that it will be good news for homeowners and homebuyers.”

Accepting that rates are what they are and are unlikely to see major fluctuations looking ahead could be spurring plenty of buyers to enter a market they had previously stepped away from.

“So many people in the past few months have basically thrown their hands up in the air and said, ‘You know what? I need to buy. I need to move. I’m going to do it. I know rates are high, and I’ll end up refinancing when rates come down,’” Cohn said. “But I think that if we can get back that almost 50-basis-point loss in rates that we lost over the course of the past month, that will put us in pretty good stead as we head into the end of the spring and the summer.”

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