Split Fed decision may reflect deeper concerns, economist says
Following the Federal Reserve’s latest decision to hold interest rates steady, Mortgage Bankers Association (MBA) chief economist Mike Fratantoni said the Federal Open Market Committee (FOMC) continues to signal caution amid mixed economic signals. However, dissent from two Fed governors, coupled with MBA’s latest forecast, suggests monetary easing may still be on the horizon.
“The news from today’s FOMC meeting was that two governors, Bowman and Waller, dissented from the decision to keep rates steady at this time,” Fratantoni said in a statement after the Fed released its policy update Wednesday. “The FOMC statement acknowledges that economic growth has moderated but given the uncertainty about the future paths for inflation and unemployment, the majority of the FOMC members determined that the better course was to hold rates steady for now.”
Dissent points to early action
The two dissenting members, Michelle W. Bowman and Christopher J. Waller, argued for a 0.25-percentage-point cut to the federal funds rate during this meeting. According to Fratantoni, their opposition had been telegraphed in previous public remarks.
“The dissenters had previewed their arguments in recent speeches,” he said. “Their concerns are that the Fed would be better to cut rates now, before weakness in the job market becomes more apparent.”
Fratantoni also noted that while recent tariff increases could lead to a pickup in inflation, both dissenters appear to believe the effect will be temporary.
MBA expects three rate cuts through 2026
Despite the Fed’s current pause, the MBA maintains that interest rate reductions are still likely. “MBA’s forecast is that conditions will evolve such that the Fed will cut rates twice this year and once more in 2026,” Fratantoni said. He cited labor market softening as the primary factor likely to push the FOMC to ease policy.
Limited relief for mortgage borrowers
However, Fratantoni cautioned that any action on short-term rates may have minimal effect on mortgage markets. “The Fed’s actions with respect to short-term rates are likely to have little impact on longer-term rates,” he said. The MBA projects 30-year mortgage rates may decline only slightly to 6.5% in the next year, constrained by rising federal deficits and Treasury issuance.
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