The Federal Reserve is putting interest rate hikes back on the table

The Federal Reserve kept its key interest rate steady at its March 17 and 18 meeting minutes released Wednesday shows that some policymakers have raised the possibility of rate hikes if inflation proves to be more persistent than expected – a scenario that would have direct consequences for an already tense housing market.

For real estate professionals, the conclusion is that short-term interest rate cuts are no longer a given, and that financing costs could remain higher for even longer, further dampening the optimism of real estate agents, which had already soured heading into spring.

The case for holding – or walking

Nearly all Fed members agreed to keep the federal funds rate at 3.5 to 3.75 percent, but the internal discussion made clear that increases remain on the table. Some participants argued for wording that explicitly recognized that upward adjustments might be appropriate if inflation remained above target – a notable shift from previous discussions focused primarily on the timing of the cuts.

The “vast majority” of participants concluded that the risk of inflation continuing to rise above the Fed’s 2 percent target had increased, partly due to rising oil prices following a conflict in the Middle East that pushed crude futures higher in the intervening period. Some participants said they had already pushed back their expected timing for rate cuts into 2026.

The lone dissenting voice came from Governor Stephen Miran, who moved in the opposite direction, favoring a quarter-point cut over concerns that current policies would contribute to weak labor demand.

What it means for housing

For agents, the Fed’s stance matters most because of its effect on mortgage rates – which are already moving in the wrong direction. The 30-year fixed rate reached 6.62 percent at the end of March, rising sharply from a less than four-week low in February. The Fed’s minutes show relief won’t come quickly and could get worse before it gets better.

Residential construction loans remained subdued, even as refinancing increased slightly and financing conditions for residential real estate remained somewhat restrictive. If inflation data doesn’t cooperate, interest rates, which were expected to gradually decline this year, could instead rise further, putting pressure on affordability and inventory turnover at a time when the market is already sending mixed signals about where prices are headed.

The Fed emphasized that its next move — in any direction — will be driven by incoming economic data, not a predetermined path. The next FOMC meeting is April 28-29.

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