Some policymakers have raised the possibility of rate hikes if inflation proves more stubborn than expected.
The Fed kept its benchmark interest rate unchanged at its March 17-18 meeting, but minutes released Wednesday showed that some policymakers raised the possibility of raising rates if inflation proves to be more stubborn than expected, a scenario that could have a direct impact on an already stressed housing market.
Importantly for real estate professionals, interest rate cuts are no longer the norm in the short term, and borrowing costs may remain high for a long time, further dampening real estate agent optimism that had already deteriorated heading into the spring.
For holding or hiking
Almost all Fed members agreed to keep the federal funds rate between 3.5% and 3.75%, but internal discussions made it clear that raising rates remains on the table. Some participants pushed for language that explicitly acknowledges that upward adjustments may be appropriate if inflation remains above target, a notable change from previous discussions that have focused primarily on the timing of rate cuts.
A “majority” of participants concluded that oil futures rose over the course of the meeting, in part due to the sharp rise in oil prices following the Middle East conflict, increasing the risk that inflation will remain above the Fed’s 2% target. Several participants said they had already pushed back the expected rate cut to 2026.
One negative vote came from Gov. Stephen Millan, who pushed in the opposite direction, supporting a quarter-point cut, citing concerns that current policies are leading to weak labor demand.
What it means for housing
For officials, the Fed’s stance matters most through its impact on mortgage rates, which are already moving in the wrong direction. The 30-year fixed rate hit 6.62% in late March, a sharp jump from its February low in less than four weeks. The Fed’s minutes suggest relief won’t come soon and the situation could get much worse before it gets better.
Despite a slight increase in refinancing, borrowing for home purchases remained subdued and lending conditions for residential real estate remained somewhat restrictive. If the inflation numbers don’t match up, interest rates that were expected to ease gradually this year could instead rise further, compressing affordability and inventory turnover at a time when markets are already juggling mixed signals about the direction of prices.
The Fed emphasized that its next actions, in either direction, will depend on future economic data, not a predetermined path. The next FOMC meeting is April 28-29.
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