The members of the Board of Governors of the Federal Reserve System participate in the Federal Open Market Committee (FOMC) meeting held in Washington, D.C. on March 18-19, 2025, Photo courtesy of the Federal Reserve / Handout
While the Federal Reserve held fast despite jitters that have gripped the national economy in recent weeks, local bankers are remaining optimistic about the potential for lower interest rates this year.
On Wednesday, the Federal Reserve’s top policy makers left the target range for the federal funds rate unchanged, at 4.25 to 4.5 percent. Fed officials also projected that there will be two cuts to its benchmark short-term interest rate in 2025.
“Clearly the Fed has adopted a wait-and-see e attitude, which I think is the best course of action given the daily [Washington] D.C. fluctuations around taxes, tariffs and jobs,” said Julie Thurlow, president and CEO of Reading Cooperative Bank. “Last year’s rate reductions have had a positive effect at Massachusetts community banks, lowering our cost of funds and improving net interest margins. Community banks tend to have longer term assets – we are now seeing loan rates reprice up from pandemic lows, slowing improving interest income across the board.”
Fed Chair Jerome Powell, at a news conference following a regular meeting of the the Fed’s interest rate-setting committee, said that President Donald Trump’s tariffs have started to push up inflation. Additionally, the economic uncertainty caused eight of the 19 officials on the committee to predict that they see only one or zero rate reductions this year, up from four in December.
“The Fed decision, of keeping rates unchanged, was widely expected,” said Michael Carotenuto, CFO at Arlington-based Leader Bank. “Uncertainty with the future economic picture has increased in the past few months and the Fed has reflected that in their decision and commentary today. The local market remains active, clients continue to invest in their businesses, and community banks will continue to help their clients through this period of uncertainty with solutions that are tailored to their needs.”
Perhaps most significant for the local real estate industry, the Fed’s policymakers also decided to slow the speed at which it sells of its stash of Treasurys.
Because while the federal funds rate does influence mortgage rates, they are much more strongly influenced by Treasury bond interest rates. The Fed’s move will have the effect of increasing demand for these bonds, driving down their interest rates and therefore helping push mortgage rates lower.
Stock traders’ rush into the bond market in recent weeks, worried over the risk of a tariff-driven recession, has also helped lower mortgage rates. The average rate on a 30-year, fixed-rate loan stands at 6.67 percent, down from 7.04 percent in mid-January, according to mortgage-buyer Freddie Mac.
Powell characterized the change as a technical one and not related to its interest-rate policies. Yields fell slightly in Treasury markets. The Fed is still allowing $35 billion of mortgage-backed securities to mature each month.
Associated Press staff writer Christopher Rugaber contributed to this story.
