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Fed Holds Steady

Overview: Two of the biggest economic events of the month took place over the past week, but the outcome was somewhat anticlimactic. The key inflation data came in right on target, and the Federal Reserve meeting had surprisingly little lasting impact. As a result, mortgage rates ended the week nearly unchanged.


As anticipated, the Fed “paused” and made no change in the federal funds rate on Wednesday. However, the comments and forecasts from officials were more hawkish (in favor of tighter monetary policy) than expected due to persistently high inflation. According to the meeting statement, officials believe that monetary policy works with “long and variable lags.” After 10 consecutive meetings with rate hikes, they felt that it was appropriate to allow more time to “assess additional information” before potentially tightening further.

The forecasts from officials released after the meeting sent a clear message that slowing the pace of rate hikes does not necessarily mean ending them. In fact, the median forecast was for two additional 25 basis-point increases by the end of the year, above investor expectations for just one more before the current cycle is complete. Officials also significantly raised their outlook for the length of time that the federal funds rate would stay at elevated levels. In short, officials projected that rates will be higher than investors had expected for longer.

The major inflation data released this week was right in line with expectations. In May, the core Consumer Price Index (CPI), one of the most widely followed inflation indicators, was 5.3% higher than a year ago. While this annual rate of increase has fallen from a peak of 6.6% in September 2022, it remains far above the readings around 2% seen early in 2021, which is the stated target level of the Fed.


Core CPI (annual % change)

Week Ahead

June 15 — Retail Sales report

June 20 — New Residential Construction report (also known as Housing Starts)

June 22 — Existing-Home Sales report


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