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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“Even with the heightened financial market volatility stemming from recent bank failures, the FOMC decided at its March meeting to increase the federal funds target another 25 basis points. However, this was a “dovish hike,” as the commentary and economic projections suggest we may be at or near the peak fed funds rate for this cycle. 

“Inflation is still quite high, but it is slowing. And while the job market is still quite strong, it is weakening, as evidenced by slowing wage growth. Coupled with the advent of much tighter financial conditions after the events of the past couple of weeks, we are anticipating a much slower economy over the next few quarters — which should further bring down inflation per the Fed’s goal.

“Homebuyers in 2023 have shown themselves to be quite sensitive to any changes in mortgage rates.  With this move from the Federal Reserve, MBA is holding to its forecast that mortgage rates are likely to trend down over the course of this year, which should provide support for the purchase market. The housing market was the first sector to slow as the result of tighter monetary policy and should be the first to benefit as policymakers slow – and ultimately stop – hiking rates.

“The statement indicated an intent to continue quantitative tightening, allowing Treasury and Agency MBS to passively roll off the Fed’s balance sheet.  We expect that the recent increase in direct lending by the Fed through the discount window and the new term lending facility will help to improve liquidity for banks, despite this ongoing reduction in the size of the Fed’s securities holdings.”