Federal Reserve Press Release In Plain English – September 2023

The Federal Open Market Committee (FOMC) chose to leave the target for the federal funds rate in the range of 5.25% – 5.5%. The markets widely expected this and that alone should have no impact on mortgage rates.

Once a quarter, the Federal Reserve also releases projections for where it thinks various economic indicators are headed in the near, medium and long-term future. This includes a projection for the federal funds rate range. While never written in stone, these projections get particular attention because the Fed has direct control over them.

Of course, the Fed could change its mind based on what’s happening with the economy, and particularly inflation, at any time. But it’s worth noting that right now, most of those surveyed believe that the midpoint of the target range for the federal funds rate will be 5.625% at year’s end. This implies another rate hike of 0.25% in coming meetings.

Although rates are projected to run higher at some point over the next two meetings, the majority of members anticipate some form of rate drop from the current level in 2024.

Although it’s not a direct correlation, short-term rates like the federal funds rate tend to follow in at least the same direction as longer-term rates for things like mortgages.

The bottom line when it comes to getting the mortgage right now is making sure you’re comfortable with the payment. You may be able to refinance later when your mortgage is old enough and meets eligibility requirements. Consult a Home Loan Expert if you have questions. If you’re ready to get started buying a home or refinancing, you can apply online.

My commentary is in bold below.

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

In the Fed’s judgment, the economy is doing pretty well. However, the Committee acknowledges that job gains have been slower, though they remain pretty good. The Federal Reserve’s goals of keeping inflation at bay while also supporting maximum employment are often in conflict with one another.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

This is a relatively new addition to the statement as rising rates were at least partially to blame for a couple of bank failures (in addition to mismanagement). The Fed says that its actions probably have an impact on economic activity and hiring, but it’s hard to know how much. Officials are eyeing it closely.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

All eyes go to this paragraph first in assessing these statements. The Federal Reserve chose to leave the target for the short-term federal funds rate where it is for the time being. Any rate hikes upcoming will take place either at a meeting November 1 or December 13 if the Committee sticks to its projections.

The entire purpose of this rate hiking cycle is to get a handle on inflation. The Committee is maintaining a 2% target. The federal funds rate target range tends to filter through to everything lenders do because it’s how they borrow from each other overnight. If that cost becomes more expensive, it’s passed on to clients.

Mortgage rates are directly impacted by mortgage bonds. The Federal Reserve has been selling off its portfolio, which has the tendency to push mortgage rates up. The theory is that if it’s more expensive to borrow, markets will adjust and house prices drop, lowering inflation. Low supply has prevented that so far.

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.

The Federal Reserve is continually looking at various forms of economic data to determine whether it’s time to change course with its policy. Although it’s a wide-ranging list, there’s no doubt officials are most focused on inflation as well as expectations for inflation. Everything else is secondary right now.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.

The voters presented a united front.