The Federal Reserve decided not to further increase interest rates during its June 13-14 Federal Open Market Committee (FOMC) meeting. Fed Chair Jerome Powell stated there would likely be two additional rate increases before the end of 2023.
Following its two-day meeting, the FOMC stated it has opted for a wait-and-assess approach following 14 months of continues rate increases which saw near-zero federal fund rates increase to over 5 percent.
“Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy,” FOMC said in its post-meeting statement.
“We have raised our policy interest rate by 5 percentage points, and we’ve continued to reduce our security holdings at a brisk pace,” Powell added in the press conference following the committee’s announcement. “We’ve covered a lot of ground and the full effects of our tightening have yet to be felt.”
The 18 members of the FOMC indicated their expectations for rates in 2023 and further out. The members made it clear they are prepared, and expecting, to increase rates again at least once, but likely twice, before the end of 2023. Four members predict one more rate increase this year and nine expect two. Two more members added a third hike while one saw four more. Only two members signaled they don’t see more hikes this year.
The central bank committee also increased its forecasts for the next two years, now projecting a fed funds rate of 4.6 percent in 2024 and 3.4 percent in 2025. That’s up from respective forecasts of 4.3 percent and 3.1 percent previously.
Though a majority of the FOMC members still projected the federal fund rate would begin to decline in 2024, none thought it was going return to what is considered a “normal” level of between 2 and 2.5 percent until after 2025.
“The new set of economic projections shows that the median FOMC member expects two additional hikes by the end of 2023. Unfortunately, this only adds to the chances that the economy will slow sharply,” Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni said. “Given the banking challenges that have already resulted in a tight credit environment, the threat of further hikes, baked in to medium-term rates today, will only further slow economic activity. We expect that economic conditions will develop in such a way that further hikes are not needed, but this new information impacts markets immediately.
“Mortgage rates have generally increased in the past month, and this has slowed the pace of housing market activity, as potential homebuyers have been very sensitive to any changes in rates this year,” Frantantoni added. “We expect that mortgage rates will drift down over the second half of the year as the economy slows and the Fed reacts accordingly by holding off on further rate hikes.”