FOMC Commentary from MBA's Mike Fratantoni

The following is MBA SVP and Chief Economist Mike Fratantoni’s commentary following the Federal Reserve’s FOMC statement released this afternoon on monetary policy and the economy:

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“Neither a fragile banking sector nor a slowing job market prevented the Federal Reserve from increasing its short-term rate target again today, in line with market expectations. However, with this increase, we expect this is the peak rate for this cycle, and potential homebuyers and their mortgage lenders may be breathing a sigh of relief. We continue to expect that mortgage rates will drift down over the course of the year as the economy slows, as we move closer to the Fed lowering rates beginning in 2024, and as financial market volatility finally begins to settle down.

“Although recent speeches by Fed officials had indicated an increasing amount of disagreement regarding the next steps for policy, this was another unanimous vote. We expect that the Fed will be ‘data dependent,’ and certainly would react to any renewed increase in inflation, but today’s statement is consistent with a plan to pause rates at this level.  Inflation is likely to trend down over the course of the year, particularly as weakness in the rental market begins to be reflected in the inflation numbers.

“In the near term, tighter credit conditions will slow the pace of economic activity. The housing sector is already operating under tight credit, so we don’t expect this headwind to outweigh the benefits from somewhat lower mortgage rates. The housing market is likely pulling the economy out of this slowdown, as it typically does.

“While lower mortgage rates will help with affordability, they won’t solve for the lack of inventory on the market, particularly of existing homes. This lack of supply will continue to be the primary constraint on home sales through 2023.”