the Federal Reserve sticks to three rate cuts in 2024 as the clock starts to tick

As many expected, Federal Reserve Chair Jerome Powell took to the podium Wednesday afternoon to indicate that the Federal Open Market Committee will hold the federal funds rate in the range of 5.25% to 5.5%. What was not quite as expected was their forecast of three interest rate cuts by the end of this year remaining unchanged. This latter piece of information along with Chairman Powell’s press conference—which was confident rather than gloomy—caused markets to jump, with the S&P 500, Dow Jones, and Nasdaq all hitting record highs.

Although Chairman Powell noted that rates are likely at their peak, inflation has been stubborn, complicating the soft landing that the Fed is so carefully trying to engineer. The risks posed by inflation remain unwavering, in a moment where greater confidence that the 2% inflation target will be achieved is needed before the Fed makes a decision to cut. This confidence will be dependent on incoming data—a lot of which has been a little sharper than expected to start 2024. The question then remains, will there be enough consecutive data releases before the end of the year to both provide said confidence and, subsequently, allow for three rate cuts?

As part of this meeting—and relevant to the aforementioned question—the Fed also released an updated economic forecast, with a projection of 2.6% core Personal Consumption Expenditures (PCE) inflation by the end of 2024 (elevated from their December projection), 2.2% by 2025, and finally down to the 2.0% level by 2026. PCE is a measure of consumer spending, considered to be more comprehensive than the Consumer Price Index (CPI) as it includes a wider range of goods and services, considers the change in the quality of said goods and services over time, and adjusts for shifts in consumer behavior. The core measure excludes volatile food and energy prices for both PCE and CPI.

For those who have been waiting on the sidelines to become active in real estate markets across the country, this may not have been the friendliest news. Higher rates mean less purchasing power for those interested in buying while would-be sellers are faced with little incentive to list their home and abandon the rate they secured prior to the tightening cycle. Further to the topic of unfriendly news, Fannie Mae adjusted its outlook for mortgage rates earlier this week with a forecast of 6.4% for a 30-year fixed mortgage by the end of 2024 and only reaching 6% by Q4 2025 (a stark contrast to its outlook in February which projected 30-year fixed mortgages would be sub-6% by the end of this year). So the question remains: will there be enough time for confidence-inducing data to shift the Fed’s perspective and allow for three cuts before year’s end? It’s impossible to deliver a concrete answer, but we’ll have a better idea come May.