In a widely anticipated move, the Federal Reserve concluded its April 30–May 1 meeting by keeping its benchmark rate at 5.25%–5.5%. The central bank’s continuing fight to bring down inflation has left this key rate at this range since July 2023.

A key role of the Fed is to promote a healthy economy for U.S. households, businesses, and communities. One of the ways the central bank achieves this is by controlling inflation, which is the rate that the costs of goods and services increase. The Fed influences inflation by adjusting—either up or down—its benchmark rate, which is the interest rate banks charge one another for short-term loans.

The Fed does not directly set mortgage interest rates, but an increase in the benchmark rate often precedes an increase in mortgage rates. Conversely, when the key rate is lowered, rates typically follow suit.

The Consumer Price Index (or CPI) is the most widely used measure of inflation. The most recent CPI report revealed that inflation was up 0.3% in April and 3.4% year-over-year. Both numbers were down slightly from March’s readings of 0.4% and 3.5%.¹

This encouraging data was welcome news to Fed policymakers. Nearly two-thirds of economists recently polled by Reuters said they believe the central bank will cut its benchmark rate twice this year, with the first being in September.²

In addition to closely monitoring monthly CPI, the Fed also watches the Personal Consumption Expenditures (PCE) index. The most recent PCE data showed that inflation was trending in the right direction. PCE was up 2.7% year-over-year, the same rate as in March. Annual core PCE, which strips out volatile food and fuel prices, also remained steady at 2.8%. The Fed has stated that it will not reduce its benchmark rate until PCE hits 2%.

Rate predictions for the remainder of 2024

Stubbornly persistent inflation and the Fed holding its benchmark rate steady has forced leading mortgage industry experts to revise their rate predictions for 2024. The consensus is that interest rates will remain elevated for longer and may even stay high if and when the central bank cuts its benchmark rate. Here are recent forecasts:

• “I don’t see mortgage rates declining significantly this year,” said Orphe Divounguy, Zillow’s senior economist. “Mortgage rates are famously difficult to predict, but I’d be surprised if we ended the year with rates below 6%.”
• “While monetary easing should come later in the year, mortgage rates most likely won’t see any meaningful drops in 2024,” predicted Molly Boesel, principal economist at CoreLogic. “Look for the 30-year mortgage rate to remain in the low-7% range in June.”
• “We’ll need a succession of improved inflation readings before we can hope for a sustained move below 7 percent in mortgage rates,” stated Bankrate chief financial analyst Greg McBridge.

Many financial institutions revised their rate forecasts, too. Fannie Mae bumped up its year-end prediction from 5.9% to 6.4%. The National Association of REALTORS® also increased its forecast: from 6.3% to 6.5%. Wells Fargo’s May economic summary adjusted its monthly rate outlook to 6.5% from January’s 6.05%.

As the market continues to shift, know that you can count on M&T Bank to provide industry insights to help you prepare your clients for this major financial decision. Reach out if you have any questions; we would love to hear from you.

¹Jeff Cox, “CPI report shows inflation easing in April, with consumer prices still rising 3.4% from a year ago,” CNBC, last updated May 15, 2024.

²Indradip Ghosh, “Fed to cut rates in September, say nearly two-thirds of economists,” Reuters, last updated May 13, 2024.

³JeffCox, “The Fed’s preferred inflation measure rose 0.2% in April, as expected,” CNBC, last updated May 31, 2024.

This information is being provided for informational purposes only and is neither a loan commitment nor a guarantee of any interest rate. If you choose to apply for a mortgage loan, you will need to complete our standard application. Our consideration for approval of your mortgage loan application will include verification of the information obtained in connection with your request, including but not limited to income, employment, asset, property value and/or credit information. Our loan programs are subject to change or discontinuation at any time without notice. Not all products are available in all states. Refinancing to reduce total monthly payments may lengthen repayment term or increase total interest expense. Interest rates are subject to change without notice.

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