Fed Holds Rates Constant; Sees One Cut for 2024


The Federal Reserve’s monetary policy committee held constant the federal funds rate at a top target of 5.5% at the conclusion of its June meeting. In its statement, the Federal Open Market Committee (FOMC) noted:

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 modest further progress toward the Committee’s 2 percent inflation objective.

Compared to the Fed’s May statement, the current statement upgraded “lack of progress” stated in May to “modest further progress” referred to this month with respect to achieving the central bank’s 2% inflation target. The FOMC’s statement also noted (consistent with its commentary in May):

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 percent. 

Overall, the central bank continues to look for sustained, lower inflation readings, with the data having shown insufficient progress during the first quarter. The May CPI data was a step in the right direction, but the central bank will remain data dependent with respect to an eventual easing of monetary policy.

An important reason for the lack of recent inflation reduction remains elevated measures of shelter inflation, which can only be tamed in the long-run by increases in housing supply. Ironically, higher interest rates are preventing more construction by increasing the cost and limiting the availability of builder and developer loans necessary to construct new housing.

Chair Powell noted the challenges for housing in the current environment. He stated that the “housing situation is complicated.” He indicated that the best thing the Fed could do for the housing market would be “to bring inflation down, so that we can bring rates down.” However, Chair Powell noted that “there will still be a national housing shortage as there was before the pandemic.”

NAHB agrees. The housing market requires non-monetary policy help on the supply side of the industry, including labor force development and zoning reform, to address the housing shortage.

The Fed also published new economic projections with the conclusion of its June meeting. These projections include a consensus expectation of just one rate cut in 2024, consistent with NAHB’s current economic forecast.

See more analysis from NAHB Chief Economist Robert Dietz in this Eye on Housing post.

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