Fed Signals it Will Pause Rate Hikes for Now

In a positive development for NAHB and the housing industry, Federal Reserve Chairman Jerome Powell has signaled that the central bank is unlikely to raise rates further unless clear signs emerge that strong economic growth could trigger a rise in inflation.

As reported by the Wall Street Journal, Powell said during an address in New York today that “incoming data over recent months show ongoing progress toward both” of the Fed’s dual mandates to foster maximum employment and price stability.

NAHB has been urging the Fed to hold the line on rate hikes, noting that the bulk of inflation is now due to elevated shelter inflation, which was responsible for 90% of the headline inflation rate in July and August.

With mortgage rates at a 23-year high and mortgage application activity down to its lowest level since 1996, NAHB and other housing groups sent a letter to Chairman Powell earlier this month. Our message was crystal clear: The most effective approach to tame shelter costs — and assist on the broader inflation fight — is to facilitate the construction of attainable, affordable housing.

Uncertainty about whether the Fed will continue to raise interest rates has contributed to recent mortgage rate hikes and volatility.

This is why NAHB wants Powell to publicly state that the Fed does not contemplate further rate hikes. While his remarks today did not go that far, they suggest that the Fed is seriously considering a pause on further rate hikes for the foreseeable future as the central bank analyzes incoming economic data to assess any changes in economic conditions.

It should also be noted that other top Fed officials have publicly called for a pause in rate hikes after NAHB’s joint letter was sent to the Board of Governors of the Federal Reserve.

Speaking on Bloomberg Television earlier this month at the annual convention of the American Bankers Association, Federal Reserve Bank of Atlanta President Raphael Bostic said: “I think that our policy rate is at a sufficiently restrictive position to get inflation down to 2%. I actually don’t think we need to increase rates anymore.”

Last week, Philadelphia Federal Reserve President Patrick Harker said: “I believe that we are at the point where we can hold rates where they are. By doing nothing, we are still doing something. And, actually, we are doing quite a lot.”