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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“The FOMC left the federal funds rate target unchanged at the November meeting and did not show any indication of a move at its next meeting in December.  Many Fed officials in recent weeks have indicated that rates were high enough now that they could pause. Inflation is slowing, but not yet back to the 2% target range. This is the most important metric the Fed is watching right now. Even though third-quarter economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time. We expect its next move will be a cut in next year’s second quarter.

“The housing and mortgage markets are at a standstill. Mortgage rates near 8%, coupled with a lack of inventory, are impairing affordability, even as new home construction picks up speed. If the Fed does indeed move to cut rates next year and signals its intent to do so, mortgage rates should trend downward. Our forecast calls for this to happen, which would support a somewhat stronger spring housing market. 

“We continue to think that the risks are to the downside for the economy and expect a slowdown in the first half of next year. It’s also worth noting that heavy debt issuance from the Treasury, a consequence of large and rising federal deficits, is also contributing to higher rates.”