Keeping U.S. Housing Costs Elevated as Inflation Fight Intensifies
The Federal Reserve left interest rates unchanged this week in Kevin Warsh’s first meeting as chairman, while signaling a more cautious outlook on future rate cuts and opening the door to the possibility of additional tightening if inflation pressures persist.
The Federal Open Market Committee voted unanimously to maintain its benchmark federal funds rate in a range of 3.5% to 3.75%, where it has remained since the central bank delivered a cumulative three-quarter percentage point reduction in late 2025.
While the rate decision itself was widely expected, investors focused on a series of notable changes introduced under Warsh’s leadership, including a substantially shortened policy statement, the removal of language that had previously suggested a bias toward future rate cuts, and questions surrounding the future of the Fed’s communications framework.
Perhaps the most closely watched development was Warsh’s decision not to participate in the Federal Reserve’s quarterly “dot plot,” the chart that summarizes policymakers’ expectations for future interest rates. The omission immediately fueled speculation that the new chairman could seek major changes to one of the central bank’s most scrutinized forecasting tools.
Speaking after the meeting, Warsh confirmed that he intentionally declined to submit a projection and announced plans to establish task forces to review several core aspects of Federal Reserve operations and communications.
“I did not submit a dot for me,” Warsh said. “It’s not helpful in the conduct of policy. I suspect by year-end, as I mentioned in my opening statements, there’ll be a review about communication broadly, press conferences, dots, meetings, and the like, transcripts, minutes. This will be part of that. I don’t want to prejudge the outcomes there, but I’m pretty open-minded about what they could be.”
The updated Summary of Economic Projections reflected a noticeably more hawkish outlook among policymakers. Based on the 18 participants who submitted forecasts, the median expectation for the federal funds rate at the end of 2026 rose to 3.8%, compared with 3.4% in the Fed’s March projections.
The revised forecasts suggest policymakers now anticipate at least one rate increase this year. Eight officials projected no change in rates through year-end, one forecast a rate cut, and nine anticipated at least one increase.
An additional projection was also absent from the Fed’s longer-term 2028 outlook.
The shift marks a departure from earlier expectations that the central bank would continue easing monetary policy in 2026. Instead, policymakers appear increasingly focused on ensuring inflation remains under control amid resilient economic growth and a still-solid labor market.
The decision drew immediate reaction across the U.S. housing and mortgage industries, where borrowing costs remain a key determinant of home sales activity.
Lawrence Yun
National Association of Realtors Chief Economist Lawrence Yun argued that mortgage rates could still move lower even if the Federal Reserve leaves short-term rates unchanged.
“Mortgage rates can change even if the Federal Reserve policy does not change,” Yun said. “The longer-term interest rates, including mortgage rates, are partly determined by future inflationary pressures and not directly by the Fed’s short-term interest rate policy changes. Should the inflation rate subside, mortgage rates can also dip.
“With housing inflationary pressure easing, especially in the oversupplied apartment sector, future inflation figures appear manageable. Moreover, AI-induced gains in worker productivity will also lessen future inflationary pressures. Therefore, the Federal Reserve policy should anticipate lighter inflation in the future, especially if oil prices soon retreat.”
Mike Fratantoni
Mortgage Bankers Association Chief Economist Mike Fratantoni said the Fed’s updated projections represented a significant shift from earlier forecasts and underscored policymakers’ growing concerns about inflation.
“The FOMC kept its target rate unchanged, but the economic projections released today have shifted markedly relative to the projections in March, with the median member’s projection showing much higher inflation in 2026 and somewhat higher inflation in 2027,” Fratantoni said. “Not surprisingly, with elevated concerns about inflation and little sign of deterioration in the job market, the median member now projects an unchanged fed funds rate this year, but still expects some cuts over the next two years.”
Fratantoni noted that the unanimous vote masked potentially wide differences among policymakers regarding the appropriate policy path ahead.
“The vote to keep the rate target and balance sheet policy unchanged was unanimous. It will be very informative over the next few weeks to see whether there is still as wide a divergence of views across the FOMC regarding the appropriate stance of policy at this point,” he said.
“The overall tone is more hawkish than many had anticipated, and the immediate market reaction was an increase in rates. MBA’s forecast is for mortgage rates to average about 6.5% over the forecast horizon, given the resilience in the broader economy and job market, the likely stance of monetary policy given persistent inflation, and ongoing fiscal pressures, which will keep upward pressure on longer-term debt.”
For financial markets, the meeting offered an early glimpse into how Warsh intends to reshape the central bank. Although no immediate policy changes emerged beyond the rate decision, the chairman’s skepticism toward forward guidance and his willingness to reconsider long-standing Fed communications tools suggest a potentially significant evolution in how the institution signals policy to investors in the years ahead.
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