Despite previous predictions, the Federal Open Market Committee has not cut interest rates in 2024. It is now anticipated that one or two rate cuts may occur later in the year due to inflation progress taking longer than expected. Short-term U.S. interest rates currently stand at 5.25% to 5.5%, with markets previously expecting rate cuts to start sooner in 2024.
The robust job market has allowed policymakers time to observe inflation data trends. However, Q1 2024 inflation figures have shown a lack of progress following disinflation in late 2023. Markets are eagerly awaiting the next Consumer Price Index report due on May 15 to gauge the situation further and anticipate possible future rate adjustments.
The Federal Reserve Chair, Jerome Powell, has described the labor market as “very, very strong” and highlighted the lack of progress on inflation in the first quarter of 2024. While most policymakers initially expected two or three interest rate cuts this year, it is likely that fewer cuts will be projected at the FOMC’s next update in June, with interest rates expected to be held steady at the upcoming meeting on June 12.
Assuming interest rates remain steady in June, there are four remaining meetings for potential rate adjustments in 2024. The most likely scenario is for the FOMC to cut rates in September and December, according to the CME’s FedWatch tool, although there is a 10% chance rates will remain unchanged. Thirty-year mortgage rates increased to over 7% in April 2024, down from almost 8% last October but on a generally increasing trend since early 2022.
Long-term interest rates factor in the FOMC’s expected actions, influencing mortgage costs. A more aggressive rate cut could lower mortgage rates, while further delays could push rates higher. The neutral interest rate level set by the FOMC is crucial for the 30-year mortgage market, given its long-term focus. Despite some delays, markets still anticipate one or two interest rate cuts in 2024, suggesting that rates will likely remain relatively elevated by the end of the year.
