During his semiannual monetary policy report to Congress, Federal Reserve Chairman Jerome Powell did not specify a timeline for lowering interest rates amidst concerns about the impact of a tightening monetary policy on the housing market.
Powell noted that Fed officials are aiming for a better balance between inflation and employment in the U.S. economy before considering a rate cut. Market analysts are predicting a rate reduction at the September Fed meeting, with around 70% of them forecasting this outcome, according to the CME Fedwatch Tool.
He emphasized that lowering the federal funds rate target range would be appropriate once there is more confidence that inflation is progressing towards the 2% target. Powell highlighted that recent inflation data shows some progress but additional positive data is needed to strengthen confidence in sustained inflation growth.
Addressing the labor market, Powell acknowledged a strong, yet balanced market that is not currently contributing to widespread inflationary pressures. He stressed the importance of maintaining a delicate balance in monetary policy to avoid negative impacts on economic activity or inflation progress.
Affordability challenges
High housing costs and mortgage rates were key concerns raised during the congressional hearing, with Senator Sherrod Brown highlighting the impact of rising rates on housing affordability. Brown emphasized that keeping rates high for an extended period could hinder income growth and exacerbate the housing supply shortage.
Powell acknowledged the challenges faced by the housing market due to the Fed’s tighter policy and noted that achieving sustainable inflation at 2% is crucial for improving housing market conditions.
Basel III Endgame rules
Participants criticized the Basel III rules during the hearing, citing concerns about increased bank capital requirements impacting the mortgage industry. Ranking Member Tim Scott raised objections to the proposal, labeling it as overregulation that could restrict home ownership opportunities.
Powell mentioned ongoing discussions with regulatory agencies to address potential changes to the Basel III proposal, aiming for consensus on revised terms in the near future. He highlighted the importance of transparency in the rulemaking process and indicated plans for a revised proposal for stakeholder feedback in the coming months.
The Mortgage Bankers Association supported Powell’s call for a re-proposal of Basel III, expressing concerns about the proposal’s potential negative effects on mortgage credit availability and the broader real estate finance markets.
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