FINANCE
Why haven’t interest rates been cut yet in 2024? When could it happen?
Interest rates remain at the highest levels in decades, even as inflation has subsided. When will rates come down?
Last week, the Federal Reserve’s Federal Open Market Commission, tasked with establishing the federal funds rate (FFR), made no further adjustments, keeping the FFR at 5.25 and 5.50 percent.
In describing the decision, the FOMC released a statement that explained that “the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks” as they continue to evaluate what changes, if any, are needed for the FFR. The FOMC began to increase interest rates to slow the flow of money and stifle inflation, which had begun to take hold in economies worldwide. While prices have slowed in their upward movement, they are still, on average, rising. In December, the Bureau of Labor Statistics (BLS) found that the Consumer Price Index rose 0.3 percent, with shelter containing to drive the uptick in average prices. While rate increases were meant to quell inflation, higher interest rates are contributing to the rising cost of housing.
Until the Fed has more evidence that inflation will remain under the two percent target set by the central bank, it will not begin to decrease the FFR. The next FOMC meeting will take place on 20 March, meaning that the group has a little over a month to collect more data and determine if any further adjustments will be made before spring.
How are higher rates leading to increased home prices?
Renters are currently facing a challenging situation as the average cost of leasing a property has surged by fifteen percent over the past two years. Housing is one of the most significant expenses for any household, and an unexpected increase in the price can significantly impact one’s financial situation. The asking prices of houses on the market have also skyrocketed as the supply of homes for sale has plummeted in many areas across the country. As interest rates increase, more potential sellers are reconsidering putting their house up for sale due to concerns that even if they do sell, they may not be able to purchase a better home and would likely have to take on a mortgage with a higher rate.
Although refinancing and lowering that rate is a possibility in the longer term, there is no clear indication as to when rates will fall again. And even though rates are beginning to fall, they have not come down fast enough to trigger an increase in the number of houses on the market.