Economic research

The Federal Reserve maintains a dovish stance in July

Today’s announcement from the Federal Open Market Committee was in line with expectations and did not create the waves that its June release did when the committee provided updated economic projections that showed stronger economic growth and faster-than-expected rate hikes. The FOMC pointed out that economic data continues to show a steady recovery, even as the COVID health crisis continues to evolve. The Fed statement proposed that the central bank remain committed to its current path, while monitoring the situation and maintaining a low rate environment, to ensure that the economy and employment return to a solid base. The Fed has mentioned that it still perceives risks in its outlook and is willing to let inflation exceed 2% for a longer period to meet its targets.

For housing markets, the Fed’s continued purchases of mortgage-backed securities (MBS) will keep the cost of borrowing low for the rest of this year. The Fed signaled in this week’s announcement that while it remains on track to increase its purchases of MBS by $40 billion a month, it will assess its position at upcoming meetings and be prepared to make changes if conditions change.

On the positive side, housing is slowly moving towards normalization, with increasing numbers of homeowners putting their homes up for sale. An increase in supply provides more options for buyers, many of whom faced a first half of 2021 filled with unsuccessful offers. Improving inventories are also likely to shift more activity into late summer and fall, pushing the buying season later in the year. In the longer term, the markets still have an urgent need for new construction. The key lasting solution to the current housing shortage and affordability crisis is a renewed focus on affordable housing.

George Ratiu

George Ratiu