As widely expected, Federal Reserve Bank officials elected to keep interest rates steady—for now—following the September Federal Reserve Open Market Committee (FOMC) meeting as it navigates a cooling job market and decreasing inflation.
“We decided to maintain the target rate while continuing to reduce our security holdings. We have not decided at this point what the appropriate rate is,” said Federal Reserve chair Jerome Powell following the announcement. “We are maintaining the rate while waiting for further data. Real interest rates are positive now, which we need for things to be sufficiently restrictive. Economic activity is stronger than expected, so we need to keep rates at restrictive levels.”
The Federal Funds rate will remain between a target range of 5.25% and 5.5%, a 22-year-high, at least until the Fed’s next meeting scheduled on October 31-November 1. However, most Fed officials said that they expected to raise interest rates again this year and that interest rates will remain high for longer than expected. According to their median estimate, their benchmark rate will be 5.1% by the end of next year, up from the 4.6% projected last June.
Between rising gas prices, a United Auto Workers strike, and a looming government shutdown, an optimal “soft landing” scenario for the U.S. economy is not guaranteed. “Ultimately, this may be decided by factors that are outside our control,” recognized Powell.
Effects on the Housing Market
The continuation of stubbornly high interest rates has put a damper on U.S. homebuilder confidence, which dropped for the second month in September to reach its lowest level since April. Builder confidence readings fell to 45 from 50 in August, when it declined for the first time since December 2022, according to the National Association of Home Builders (NAHB).
“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” said Robert Dietz, chief economist at the NAHB. “Putting into place policies that will allow builders to increase the housing supply is the best remedy to ease the nation’s housing affordability crisis and curb shelter inflation.”
Housing starts also took a hit in August, plunging 11.3% to a seasonally adjusted annual rate of 1.283 million units, a three-year low according to the U.S. Census Bureau and the Department of Housing and Urban Development. “New construction is often viewed as a beacon of hope for the housing market, adding desperately-needed inventory that could help buyers facing affordability challenges,” says Kate Wood, home expert at NerdWallet. “But in August, housing starts hit their lowest level since June 2020, when builders were struggling with shutdowns, labor shortages, and supply chain issues.”
On a positive note, permits for future homebuilding jumped 6.9% to a rate of 1.543 million units, the highest since October 2022, boosted by a 14.8% surge in multi-family housing permits to a rate of 535,000 units. Meanwhile, single-family housing permits rose 2.0% to a rate of 949,000 units, the highest since May 2022.
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
