Federal Reserve Rate Cuts in View
The Federal Reserve’s monetary policy committee once again held constant the federal funds rate at a top target of 5.5% at the conclusion of its July meeting. In its statement, the Federal Open Market Committee (FOMC) noted:
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”
Compared to the Fed’s June commentary, the current statement upgraded “modest further progress” from last month to “some further progress” with respect to achieving the central bank’s 2% inflation target. This change in wording moves the Fed closer to reducing interest rates. Importantly, the July policy statement also noted:
“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance.”
This text, previewed by various Federal Reserve officials in recent weeks, makes it clear that the Fed has now moved from a primary policy focus of reducing inflation to balancing the goals of both price stability and maximum employment. Raising the goal of maximum employment up with inflation means that the Fed is now in position to lower the fed funds rate. However, the FOMC’s statement also noted (consistent with its commentary in May and June):
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
This wording is a reminder that the Fed remains data-dependent. Thus, although a reduction for the federal funds rate is in view, the timing will be data-dependent on forthcoming inflation and labor market estimates. Also keep in mind, inflation does not need to be reduced to a 2% growth rate for the Fed to cut. Rather, it just needs to be on the path to reaching that goal (likely in late 2025 or early 2026).
NAHB Chief Economist Robert Dietz provides more insights on expectations going forward in this Eye on Housing post.
Latest from NAHBNow
Apr 24, 2025
Expand Your Business with Aging-in-Place Marketing and Design ToolsAmericans are living longer and more active lives resulting in a need to change the way we design homes for long-term family sustainability. Numerous products and services are reinventing themselves for the latest wave of baby boomer retirees, and chief among them is NAHB’s CAPS (Certified Aging-in-Place) construction credential.
Apr 24, 2025
Fall Protection in Focus During Nationwide Stand-DownOSHA’s annual National Safety Stand-Down to prevent falls in construction begins Monday, May 5. Use valuable resources from OSHA and NAHB to educate workers on fall risks and help avoid preventable injuries.
Latest Economic News
Apr 23, 2025
New Home Sales Rise in MarchA modest decline in mortgage rates and lean existing inventory helped boost new home sales in March even as builders and consumers contend with uncertain market conditions.
Apr 22, 2025
The Power of Women in the WorkforceOver the past 125 years, women have played a crucial and multifaceted role in the labor force. Increasing women’s participation in the workforce is not only essential for individual and family well-being, but also contributes significantly to overall labor force participation rates and economic growth by adding more workers and enhancing overall productivity.
Apr 21, 2025
Who Influences the Purchasing of Building Products?In a previous post, NAHB analyzed where builders and remodelers purchased products, regardless of who ultimately purchases them (themselves or subcontractors). In this post, the question shifts to who is most often responsible for the choice of particular products.