Fed holds rates at 23-year high amid sticky inflation

Al Drago/Bloomberg

The Federal Open Market Committee held interest rates at a 23-year high Wednesday, causing consternation among experts over the timing of future cuts. 

"Inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain," said Fed Chairman Jerome Powell in a press conference. 

The chairman cited personal consumption expenditure prices rising 2.5% over the past 12 months from February. 

Experts anticipated the Fed's hold Wednesday, after Powell's comments in January dampened expectations of a March cut. About half of Fed officials still project three rate cuts this year, according to the FOMC's "dot plot", and the median participant put the end-of-year federal funds rate at 4.6%. Powell in speaking to media was noncommittal on the Fed's move at its next meeting.

The Fed's benchmark interest rate has now sat between 5.25% and 5.5% since last July, unchanged across five consecutive FOMC meetings. Melissa Cohn, regional vice president of William Raveis Mortgage, called on the Fed in a statement Wednesday to move faster on cuts it previously signaled. 

"This is an election year, and if the Fed is going to begin a campaign of rate cuts, it will have to happen on or before the July meeting," wrote Cohn in a statement. "Time is running out," she says."

Wednesday's news means mortgage rates won't fall far enough to drive meaningful origination volume gains this year, said Eric Orenstein, senior director at Fitch Ratings. 

"Eventually, mortgage loan volumes should normalize with lower rates, though there are likely several more challenging quarters ahead for mortgage companies," wrote Orenstein in a note immediately following the FOMC announcement. 

The Mortgage Bankers Association said it's forecasting the Fed's first rate cut in June, and for mortgage rates to gradually decline over the year. 

Fannie Mae this week already projected rates to remain elevated through 2025, citing the same hotter-than-anticipated inflation data the Fed pointed to. As of March 14, the 30-year fixed-rate mortgage averaged 6.74%, relatively unchanged from both the prior week and the same time last year, according to Freddie Mac.

The Fed said it will continue to let its holdings of Treasuries securities, agency debt and mortgage-backed securities run off. Its holdings have declined by almost $1.5 trillion since it began the process; Powell said members didn't commit to a slowdown in quantitative tightening.