The Federal Reserve’s Open Market Committee (FOMC), the rate-setting body that meets roughly eight times per year, left the Federal Funds rate unchanged at its July meeting today. This will leave the target in a range of 3.5 to 3.75 percent. The decision was not unanimous, coming in instead with 3 dissenting votes who preferred to raise rates by 0.25 percent.
Why the dissent is relevant
The three votes to hike show that the Committee is not in lockstep and has a range of views about the acceptability of the current levels of inflation. Though the June CPI print was lower than expected and an improvement on previous months, both headline and core inflation were higher than the Fed’s target of 2%. In addition, this price data came from a period before the re-escalation of the war in Iran, which adds inflationary pressure across the spectrum of consumer goods through increases to oil prices. Three of the governors: Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, are making it clear that inflation is at the center of their monetary policy decisions and that the labor market appears resilient enough to them to handle a rate hike.
What this means going forward is that rate hikes are the expectation without a serious change to inflation readouts. The “hike” camp will likely grow in numbers if the labor market remains strong and inflation remains above 2%. Already, markets are pricing in rate increases for the September meeting of the FOMC. The statement released by the Committee did not mince words: “The Committee will deliver price stability.” Though this month was too soon for nine of the voting members to choose to support a rate hike, increased interest rates are the expectation going forward.
Reaction to the decision
The 10-Year Treasury yield jumped as the decision was released, in response to the three dissenting votes and their implication about rate hikes in the future. The yield was already elevated due to inflation expectations stemming from the re-escalation of conflict in Iran, which has driven oil prices up and led to the anticipation that the national deficit may continue to grow. Both of these knock-on effects lead to higher interest rates on their own, even without the signals from the FOMC that rate hikes are likely to come.
What this means for housing, and homebuyers and sellers
Prospective buyers and sellers have been eyeing mortgage rates closely in 2026. While this month’s rate pause from the Fed will not give them much to react to, the implications of rate hikes in coming months signal that mortgage rates are soon to move against them. This year has seen a steady spring for sales in the housing market that has devolved into a softer summer, due in part to mortgage rates rising from below 6.0% in late February to over 6.5% in mid July. First-time homebuyers, who have struggled in a historically noteworthy way in recent years, are most likely to take out larger mortgages and are thus more exposed to high mortgage rates. Would-be sellers with ultra-low rates on their outstanding mortgages are unlikely to list their homes just to swap for today’s higher rates, and this lock-in effect prevents the inventory of homes for sale from growing to its natural level. It’s no secret that still-high mortgage rates are holding the housing market back, and this month’s FOMC is unlikely to signal any immediate relief. Given the driver of recent inflation, a resolution in tensions with Iran and reopening of the Strait of Hormuz is the clearest path to near-term relief.
