Federal Reserve Keeps Interest Rates Steady—but Signals First Cut in 4 Years Could Come in September

Mortgage rates may remain high for the rest of the summer, but there are signs that could change in the fall.

The Federal Reserve’s Open Market Committee left its base interest rate steady at a range of 5.25% to 5.5% on Wednesday.

The Fed released a statement after its meeting concluded that read in part that “it does not expect it will be appropriate” to lower borrowing costs “until it has gained greater confidence.”

Addressing the real estate market, Chairman Jerome Powell said: “In the housing sector, investment stalled in the second quarter after a strong rise in the first. Improving supply conditions have supported resilient demand and the strong performance of the U.S. economy over the past year.”

Yet confidence is on the horizon for many.

“Investors are nearly unanimous in expecting a Fed rate cut in September,” says Realtor.com® Chief Economist Danielle Hale. “A rising unemployment rate and moderating job growth combined with further slowing inflation have convinced markets that policy could be loosened a tick.”

Hale points to recent inflation and labor market data that has softened “somewhat faster than the Fed expected in June” as a reason why the Fed might finally lower rates for the first time in four years.

The Fed acknowledged this slowing economy in its statement as “some further progress” versus “modest further progress” in June, Hale points out.

While inflation has fallen from its peak two years ago, it still remains above the Fed’s 2% target. The latest data shows annual inflation at 3%.

While the Fed has yet to lower rates in 2024, it hasn’t raised rates for a year.

“The last time the Fed raised rates was at its July 2023 meeting,” says Hale. “If the Fed lowers its key rate, mortgage rates could fall. Even though they are not directly tied to the Fed’s short-term rates; they have been following a similar path.”

As of Wednesday afternoon, mortgage rates averaged 6.78% for 30-year fixed loans, according to Mortgage News Daily.

Once rates fall significantly, more homeowners are expected to list their properties, alleviating the housing shortage that has persisted since the COVID-19 pandemic. Many buyers have refrained from purchasing a home due to challenging mortgage rates.

Sellers, meanwhile, have been reluctant to list their homes due to their existing low interest rates.

Indeed, many potential sellers have a rate well below today’s market rate, with 87% of outstanding mortgage loans at a sub-6% rate, according to data from a report by Realtor.com.

Once rates fall, it could have the long-awaited trickle-down effect on stubbornly high home prices and low housing stock still well below pandemic levels. But in this affordability-challenged housing market, nothing is for certain.

“For home shoppers and sellers, I continue to expect that peak mortgage rates are in the rearview, but volatility remains a risk, complicating moving decisions for home sellers, homebuyers, and renters alike,” says Hale.