The Fed retains new interest rate drops. (action))
Interest rates will remain higher longer, because the federal reserve ends new interest rate drops to give an inflation room to drop closer to its target rate by 2%.
The Federal Reserve held interest rates from 4.5% to 4.75%caused by strong economic indicators which gave the central bank more space to wait. The president of the federal reserve, Jerome Powell, said in a press conference On Wednesday, the Fed intends to remain cautious about dropping additional rate as long as the labor market remains solid and prices continue to climb.
“During our three previous meetings, we lowered our policy rate by a full point of its peak,” said Powell. “This recalibration of our political position was appropriate in the light of the progress of inflation and rebalancing on the labor market. With our significantly less restrictive political position than it had been and the remaining economy, we do not need to be pressed to adjust our political position.”
The gross domestic product (GDP) has increased Annual rate of 2.3% In the fourth quarter of 2024, slightly lower than the expected growth rate of 2.6%. In December, annual inflation increased to 2.9%amount modestly higher than the annual inflation rate of 2.7% previous monthAccording to the consumer price index (ICC) Released by the Bureau of Labor Statistics (BLS). The labor market is stable and unemployment is low, 4.1% in December.
“The country's economy continues to be resilient against long -term economic setbacks, which means that the Fed does not need to continue its rate drops,” said Corelogic chief economist Selma Hepp. “And with the economic activity which was to remain robust and continue to display a growth rate of 2% +, the case of an additional monetary desserts in the coming months is more and less convincing.”
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Mortgage rates likely to remain high
Interest rates should remain intact until the second half, which could delay the relief of house buyers, according to David Sober, vice-president of business business development at Voxtur Analytics.
“Interest rate reductions (are) not expected before the second half,” said Sober. “This maintains the housing economy in a long period of discomfort, with an affordability at its lowest point in memory. The independent mortgage banks will continue to dominate the mortgage market due to the possibility of offering more innovative means of buying houses. This will be a pleasant surprise if mortgage rates drop to 6% in 2025.”
A light point is that the new president Donald Trump Administration could stimulate greater economic growth and, therefore, higher income, which gives Americans more purchasing power. In addition, lower household tax rates should increase household disposable income, even if income does not increase, according to the Realtor.com housing forecasts.
Beyond these scenarios, Hepp said that house manufacturers continue to add more new houses to provide and offer rate buyouts on new constructions, keeping these strong sales.
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What the higher rates for your wallet mean
President Donald Trump said in a speech To the economic leaders of the World Economic Forum in Davos, Switzerland earlier this month, that it “demanded that interest rates drop immediately”. Powell refused to comment on the speech, but said the Trump administration had not contacted it.
“As the economy evolves, we will adjust our political position in a way that best promotes our maximum employment and price stability objectives,” said Powell. “If the economy remains strong and inflation does not continue to progress in a sustainable way around 2%, we can maintain the restraint of politicians longer.”
Consumers who may have planned a policy of reducing more aggressive rates in 2025 will have to wait longer for relief of high borrowing costs incurred during the rate increases that the Fed has implemented in recent years to combat inflation.
“Although inflation problems have decreased considerably, they still stay,” said Michele Raneri, vice-president and head of research and council in the United States in a statement. “As a result, it is quite possible that there are fewer drops down in next year than expected a few months ago.
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