Federal Reserve Press Release In Plain English – May 2024

The Federal Reserve has largely done what was expected to conclude its two-day meeting. It left the target range for the federal funds rate unchanged at between 5.25% – 5.5%. In June, officials are going to make an adjustment to the way the central bank’s balance sheet is being handled, but this likely won’t impact mortgage rates.

If you’re in the market for a mortgage, the best thing at this point is to not focus on the rate as much as whether the cost of the financing is the best way to attain your goals. In an environment where all interest rates are higher, home loans still have some of the lowest rates available. If you’re interested, go ahead and apply.

My plain English translation of the press release is in bold and labeled below.

Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee's 2% inflation objective.

Inflation numbers are up and down on a monthly basis. However, inflation has kind of leveled off in terms of the annual rate. It’s not getting any closer to the 2% target that the Fed has. Committee members aren’t happy about that. However, job numbers are good and unemployment is on the low side.

The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

The Committee still has a goal of getting down to 2% inflation annually. That provides enough incentive to buy now, which keeps the economy going, without making the dollars that people currently have worth appreciably less. Members do feel the balance between thinking about employment and inflation is moving closer to 50-50.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5 1/4% – 5 1/2%. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2% objective.

Several things are happening here. We’ll try to break this up into a couple of different points. First, the Fed is maintaining the target range for the federal funds rate at the current level. Members really don’t want to move it until they get some better inflation data showing that the economy is moving well on the way to 2% inflation.

The second piece of this is a little more interesting. The Fed wants to slow down the pace at which it is selling off from Treasury securities. Perhaps Committee members want to preserve an option. The mortgage-backed security samples are going to continue at the same pace.

In general, if the Fed is buying, that means lower mortgage rates. Selling tends to mean higher rates because no one investor is going to purchase at the volume the Fed was during the pandemic. Attracting more investors requires higher yields, which means higher rates generally.

If you’re a home buyer though, that could also mean less competition. Meanwhile, you could also use existing home equity to consolidate debt. When all rates are higher, home loans tend to represent some of the lowest cost financing for debt consolidation or home improvements.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee 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. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Nothing really new here. The Fed gives a look at all the different factors it takes into account when making a decision. Certainly, inflation and inflation expectations are at the top of that list, but it’s far from the only concern for the Committee.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.

All voting members were in agreement.