Fed’s December Decision and What it Means for 2024

During its last policy meeting for the year, the Federal Reserve announced the maintenance of its target rate at 5.25 - 5.50%, marking the third consecutive meeting at this target rate. The Federal funds rate affects the rate at which banks borrow from each other. By adjusting the rate, the Fed influences borrowing costs. Banks, in return, adjust their rates to consumers who save and borrow with them.

‍

‍

‍

‍

With the latest U.S. core Personal Consumption Expenditure (PCE) inflation figure at 3.5% and the unemployment rate hovering at 3.7%, the Federal Reserve's decision comes at a time when the economy is showing mixed signals. Median projections by the Fed anticipate three rate cuts in 2024, lowering rates to 4.6% by year-end to target a 2.6% PCE by the end of 2024.

‍

‍

‍

‍

Although mortgage rates tend to follow the 10-Year Treasury Yields, they are also indirectly related to Fed rates as changes in Fed rates influence mortgage trends. With the current rate holding at a 22-year high and potential reductions expected in 2024, we may see a corresponding easing in mortgage rates, which will have implications for the housing market in the year ahead.

‍

‍

‍

‍

With projections indicating a potential decrease in the federal funds rate in 2024, as suggested by a survey of economists, there could be a subsequent easing in mortgage rates​​. This shift could improve housing affordability as the difference between a 6.5% rate and an 8% rate can mean $350 a month.

‍

‍

‍

‍

With projections indicating a possible decrease in the fed funds rate in 2024, we could witness a corresponding softening in mortgage rates. This anticipated change is particularly significant in the context of current challenges like constrained home affordability and limited inventory. Looking forward, these monetary policy decisions will be key drivers in shaping the landscape of the U.S. housing market.

Plotify's Takeaway:

- The Federal Reserve maintained the federal funds rate at 5.25 - 5.50% for the third consecutive time.

- Median Fed projections anticipate rate cuts in 2024, aiming to lower rates to 4.6% by year-end to achieve a 2.6% PCE.

- Mortgage rates may see some cooling into 2024, with rates dropping into the 6 - 7% range.

‍