Federal Reserve policymakers left the central bank’s key interest rate unchanged at their latest meeting on Wednesday, exercising caution following several rounds of rate cuts.
The decision to leave the federal funds rate unchanged at a range of 4.25% to 4.5% was widely expected, and will have little immediate impact on mortgage rates for homebuyers.
As well, the Fed did not issue any updates to its summary of economic projections at this meeting, its first since President Donald Trump took office, offering no insights that could move the markets that ultimately determine mortgage rates.
In remarks at a press conference following the decision, Fed Chair Jerome Powell emphasized the central bank’s patient approach.
Economic indicators signal that “we don’t need to be in a hurry to adjust our policy stance,” he said.
His remarks offered no surprises, and the financial markets that dictate mortgage rates were virtually unchanged on the same day Powell’s press conference concluded.
“The ongoing strength of the labor market gives the Fed an opportunity to be patient as it navigates risks on both the employment and inflation sides of its dual mandate,” says Realtor.com® Chief Economist Danielle Hale.
In his remarks, Powell indicated the Fed is monitoring the impact of higher mortgage rates on the housing market, but sees it as just one factor they are considering as they evaluate the appropriate policy stance going forward.
The Fed sets short-term interest rates, but does not directly control mortgage rates, which tend to move in tandem with the yields on long-term bonds.
Those long-term rates are dependent on investor expectations about the future state of the economy, government deficits, and Fed policy down the road.
For that reason, mortgage rates have risen by nearly a percentage point since the Fed began cutting its policy rate in September, despite the cuts themselves totaling a full point.
Mortgage rates have risen primarily because inflation has failed to soften as quickly as expected, while job growth remained strong, reducing expectations that the Fed will cut as quickly and deeply as initially hoped.
Last week, rates for 30-year fixed home loans averaged 6.96%, according to Freddie Mac. This week’s reading is likely to be slightly lower, following a sell-off of tech stocks on Monday that drove long-term bond yields down.
Mortgage rates, which touched a two-year low of 6.08% in September, have since generally trended upward, topping 7% earlier this month.
In his comments on Wednesday, Powell acknowledged that higher mortgage rates are likely to “hold back housing activities to some extent” if they persist.
Outlook for homebuyers after latest Fed decision
For prospective homebuyers, the Fed’s cautious approach likely means overall stability for mortgage rates as the spring selling season approaches—although that stability may be at a higher level than many borrowers would prefer.
The Fed’s next policy meeting comes in March. Bond markets expect the central bank to stand pat once again, with a 77% chance that the policy rate will remain unchanged in at the next meeting, according to SME Group’s FedWatch tool.
Mortgage rates move marginally on a daily basis in response to new economic data and other news that affects financial markets. However, barring any big surprises, rates could well remain close to their current elevated levels as spring approaches.
For homebuyers, relative stability for mortgage rates would offer a better planning environment, allowing them to determine their price range and move ahead with a purchase without playing a waiting game on rates.
The downside of rates remaining stable at their current elevated level is reduced purchasing power for buyers, at a time when home prices remain stubbornly high.
Instead, homebuyers will have to look for relief in the rising supply of homes on the market, offering more choices.
Last month, the number of active listings in the U.S. was up 22% from a year earlier, at 871,509, the highest level for a December since 2019, according to the Realtor.com monthly housing trends report.
New construction will also play an important role in the spring housing market, after single-family home construction remained strong last month.
“More home building—a factor beyond the Fed’s control and an issue that the Trump administration has called attention to—is not only necessary to address the significant housing shortage that has opened up over the last decade, it would likely accelerate the pace at which shelter inflation normalizes,” says Hale.
“Put simply, building more homes would not only fill an important consumer need, it would help get inflation back on track.”