The U.S. Federal Reserve signaled this week that it will pause further increases to the nation’s benchmark interest rate, ending a historic run of hikes intended to curb inflation and prevent a recession.
The central bank’s latest approach comes after a review of new economic projections that anticipate stronger growth by year’s end and a slightly lower unemployment rate than anticipated.
Since March 2022, the Fed has increased the benchmark lending rate 11 times in an effort to bring inflation down to a target of 2%. It had hit a peak of 9.1% last June. The key rate increased to a 22-year high, but officials said it will likely top out between 5.63-5.87% this year, CNN reported.
It’s possible the Fed could move forward with one additional hike by the end of the year, but the bigger development is that fewer rate cuts are expected next year than had been projected by some observers.
The benchmark interest rate does not directly affect mortgage rates, but it establishes the broader credit climate that has led to higher mortgage costs and a cooled-off housing market.
Fed chair Jerome Powell said the central bank’s primary objective is to create a “soft landing” for the economy that stabilizes prices.
“If you don’t restore price stability, inflation comes back,” Powell said.
The Fed’s expected course potentially could dim expectations for a stronger housing market in 2024. The 30-year fixed mortgage rate stood at 7.19% on Thursday, about 0.9 percentage points above where it was at this time last year.
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