Federal Reserve Holds Rates in March

March’s Fed decision

Although widely expected, the Federal Reserve kept the federal funds target range static at its March meeting.

The central bank’s three-year fight against Covid-era inflation continues. While the latest annualized pace of inflation inched down to 2.8% in February from 3% in January, it remains above the Fed’s long-term goal of 2%.

“While the economic activity in the first quarter economy is still on track to report growth, American households are increasingly concerned with potential re-inflation, their job security and financial outlook, which is holding them back from making major expenditures,” said Selma Hepp, chief economist at CoreLogic. “The Federal Reserve is still not expected to make any moves before the summer as they carefully tread between their two mandates – price stability and maximum employment, both of which could be upended once again.”

The Fed’s role and March’s FOMC meeting

The Fed technically doesn’t set mortgage interest rates. Multiple factors move mortgage rates, but they do intrinsically correlate with the central bank’s policy actions.

In a unanimous vote at its March meeting, the Federal Open Market Committee (FOMC) kept the federal funds target range steady. Most recently, this followed 25-point cuts in November and December, and a hold in January.

The U.S. annualized inflation rate hit a 41-year high of 9.1% in June 2022 and mostly followed a downward trajectory since. Over the course of 2024, the pace of inflation took a step back for every two steps forward. Inflation began the year at 3.1% and ended it at 2.9%, according to the U.S. Bureau of Labor Statistics. The inflation rate opened 2025 at 3% in January and 2.8% in February. That remains above the Fed’s goal of 2%.

In its post-meeting statement, the FOMC said that, “uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.”

As always, the FOMC gave the caveat that additional policy adjustments would be determined by carefully assessing “incoming data, the evolving outlook, and the balance of risks,” accounting for labor market conditions, inflationary pressures, and international developments.

In addition to holding the fed funds rate, the FOMC will continue reducing its holdings of Treasury securities, mortgage-backed securities and agency debt. The next FOMC meeting will take place on May 6-7, 2025.

How will mortgage rates react?

After climbing to a 23-year high in 2023, mortgage interest rates followed a hill-and-valley pattern in 2024. Mortgage rate movement varied in the immediate aftermath of a Fed decision.

The day following each of the two previous rate cuts in November and December, the average 30-year fixed-rate mortgage (FRM) posted a week-over-week decrease of one (0.01%) basis point and jumped 12 (0.12%) basis points, respectively, according to Freddie Mac. After January’s rate hold, the 30-year FRM dipped 1 basis point (0.01%) from the week prior.

“The FOMC’s projections showed a weaker outlook for economic growth and the job market but somewhat higher inflation for the near term compared to their forecasts in December,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “In the near term, we expect mortgage rates to remain in a fairly narrow range, between 6.5 and 7%, which should support the spring housing market.”

Interest rates typically rise alongside increases to the fed funds rate and decline after cuts. In its statement, the FOMC also said economic activity keeps expanding “at a solid pace,” with stable labor market conditions and unemployment.

Inflation has progressed toward the FOMC’s 2% goal, but needed to be seen as sustainable for a cut to be called for. A Fed cut followed by decreasing mortgage rates would surely be a welcome sign for house hunters, many of who have been sidelined due to being priced out of the marketplace.

With government chaos and major uncertainties surrounding economic policy in 2025, interest rates may become even more volatile than normal.

Should you lock in a mortgage rate?

Because multiple economic and geopolitical factors influence mortgage rates, they’re subject to high volatility.

Although projections can shift, the FOMC’s latest action signaled the economic forecast needs more organic cooling before another rate cut can be appropriate. As long as the pace of inflation keeps slowing sustainably, additional cuts could be on the horizon. Regardless of where rates go, you should always negotiate and get creative in budgeting. Building home equity is one of the biggest advantages of owning property and most common ways to accumulate wealth.

If you’re ready to begin your path to homeownership, talk to a local mortgage professional to see what rates and loans you qualify for.