Fed Projections

At the highly anticipated meeting on Wednesday, Fed officials confirmed their outlook for short-term rates to remain at elevated levels for quite a while. While this was not much of a surprise, the news caused mortgage rates to climb to their highest levels in decades.

As expected, the Fed made no change in the federal funds rate, and the statement released after the meeting was very similar to the prior one. The key information was the latest set of projections from officials for future monetary policy. First, the median forecast from 19 Fed officials is for an additional 25 basis point rate hike this year. In addition, they anticipate that the federal funds rate will remain near current levels for a substantially longer period of time than in the last set of projections released three months ago. The bottom line is that officials currently do not see rate cuts coming as soon as investors expected. According to Chair Powell, they want to see "convincing evidence" that inflation is on track to return to target levels before loosening monetary policy. 

In housing news, sales of existing homes in August fell slightly from July and were 15% lower than last year at this time. Inventory levels stand at just a 3.3-month supply nationally, far below the 6-month supply typical in a balanced market. The median existing-home price of $407,100 was 4% higher than last year at this time.

There is no doubt that additional inventory of homes available for sale continues to be desperately needed, but the latest data contained mixed news. Overall housing starts in August were disappointing with a larger than expected decline of 11% from July to the lowest level since June 2020. Most of the weakness came from the multi-family sector, however, with just a modest drop in single-family units. More encouragingly, building permits, a leading indicator, increased for both single-family and multi-family units. Builders again cited tight credit conditions for loans and high prices for land, labor, and materials as obstacles to a faster pace of construction.

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Consumer Confidence and New Home Sales will be released on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will come out on Friday.