Fed in No Rush to Cut Rates Until ‘Greater Confidence’ in Taming Inflation

At their June meeting, Federal Reserve members acknowledged there’s been notable progress in lowering inflation, but it’s not going as quickly as they’d like to consider cutting key interest rates, according to meeting minutes released Wednesday.

While the central bank conceded that the economy is showing signs of strength, all 19 FOMC members voted to keep rates steady at 5.25% to 5.5%. The Fed also indicated there’s a potential for one rate cut by the end of 2024, down from the initial three cuts projected in March.

“Participants affirmed that additional favorable data were required to give them greater confidence that inflation was moving sustainably toward 2%,” according to the meeting summary.

With a decline in core inflation measures and reports of businesses slashing prices, getting inflation under control to the Fed’s 2% annual target is taking longer than expected. Additionally, the Fed is aiming for a soft economic landing without a recession, with tightening in the labor market and slower wage growth as factors that could help temper inflationary pressures.

While the FOMC “dot plot” indicates a quarter percentage point cut before the end of the year, futures markets are anticipating two cuts in 2024, beginning in September.

Officials have been hesitant to make far-reaching forecasts, opting instead to reiterate the need to see more data that the fight against inflation has prolonged staying power before it’s appropriate to consider rate cuts. Otherwise, cutting rates too soon could send inflation back up.

As for the housing market and what this means for mortgage rates, there’s little chance that a rate cut this year will do much to spur buyer demand, says David Kittle, CEO, co-founder and partner of The Mortgage Collaborative, a national network of mortgage bankers and leaders.

“I believe the Fed has got to hold the line and get inflation under control,” Kittle says, adding that cutting too early would hurt the central bank’s credibility and spur more inflation.

A mortgage banker for nearly 50 years, Kittle says this is the seventh major correction he’s seen in his career, and there are a lot of “idiosyncrasies” that make this one different.

“Right now, there’s no housing inventory; it’s a lot of higher-priced new homes. We’re woefully below what we need for entry-level starter homes, which is a reason first-time buyers can’t get in the market.”

Kittle’s advice to mortgage professionals? Forget about interest rates, because you can’t control them. Instead, focus on what you can control in your business, he says.

“Don’t give up the relationships you have; it’s a relationship business,” Kittle says. “When rates were low, we forgot our way as an industry. Consumers have accepted this is the market we’re in right now, so develop relationships and learn how to structure a loan.”

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