Fed in No Rush to Cut Rates

In a widely anticipated announcement, the Federal Reserve paused on rate cuts at the conclusion of its January meeting, holding the federal funds rate in the 4.25% to 4.5% range. The Fed will continue to reduce its balance sheet, including holdings of mortgage-backed securities.

The Fed noted the economy remains solid, while specifying a data-dependent pause. Fed Chair Jerome Powell did qualify current policy as “meaningfully restrictive,” but the central bank appears to be in no hurry to enact additional rate cuts.

Given the ongoing, outsized impact that shelter inflation is having on overall inflation, an explicit mention to housing market conditions would have been useful. However, Powell did state in his press conference that housing market activity appears to have “stabilized.”

Although improving, shelter inflation is running at an elevated 4.6% annual growth rate, well above the Consumer Price Index (CPI). These housing costs are driven by continuing cost challenges for builders such as financing costs and regulatory burdens, and other factors on the demand-side of the market like rising insurance costs.

NAHB Chief Economist Robert Dietz offers more insights from the Fed's January meeting in this Eye On Housing article.

Additionally, the latest Macro Economic Outlook from NAHB provides further details about the pace of housing inflation, as well as a recap of 2024 economic conditions, a forecast for 2025 interest rates, and more. Watch the video below or visit the Macro Economic Outlook video library on nahb.org.