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 cut its rate target by another 25 basis points as the market had anticipated. However, while the cut was expected, and the statement was little changed, FOMC members’ projections regarding the future path for the federal funds rate moved up in the near term, and for their expectations for the longer-term neutral rate. The median member now expects that there will only be 2 cuts in 2025 and that the federal funds target will be 3% in the long run.  MBA forecasts that the federal funds rate will only drop to 3.75% this cycle.

“The projections also showed somewhat faster growth and somewhat higher inflation in the near term relative to the projections in September.

“While the unemployment rate has increased over the past year, and inflation has trended down, in recent months, inflation has plateaued. It was not surprising to see a dissent at this meeting, with one member voting to keep rates steady.

“Expectations that the Fed will cut rates less than had been anticipated have been priced into the market in the form of higher 10-year Treasury and higher mortgage rates in recent weeks. MBA’s forecast for mortgage rates moved up after the election, anticipating this change and recognizing the market’s reaction to the likely path for fiscal policy and the deficit. MBA is forecasting that mortgage rates will average close to 6.5% over the next few years, with significant volatility around that average.”