Here's what the Fed's latest remarks mean for homeowners

There were no surprises when the Federal Reserve opted to hold interest rates steady at its latest meeting—but the prospect of just one cut this year, not two, raised eyebrows.

A slower climbdown from the current target range of 5.25% to 5.5% has wide-reaching implications for borrowers hoping for relief from months of pain, according to economists.

RedFin economist Chen Zhao says it's unclear whether the Federal Open Markets Committee had an adequate opportunity to reflect on the latest better-than-expected inflation data.

The last Consumer Price Index (CPI) reading, which was released mere hours before the Fed's latest projections were published, came in flat at 3.3%.

Fed Chair Jay Powell nodded to this during his news conference and said most FOMC members "generally don't" revise their rate forecasts if data comes in during deliberations.

Zhao interpreted much of Powell's remarks as trying to dial down the importance of the summary of economic projections—especially considering that this report's inflation outlook already appeared to be "outdated" by the time CPI data was released.

The Fed: Fixing inflation is the priority

RedFin thinks the potential for just one rate cut in 2024 and the committee's longer-term predictions will have ramifications for mortgage consumers.

"They delayed expectations of further cuts, with four each expected in 2025 and 2026. Critically, they also increased their view of where they expect to settle after this cutting cycle is over from 2.6% to 2.8%," Zhao wrote.

While the markets have been expecting that inflation might end up settling at a level higher than the Fed's target level of 2%, this has knock-on effects. "A higher neutral rate keeps long term interest rates, such as 30-year fixed mortgage rates, elevated," she added.

Such elevated rates also affect the property sector in other ways. One among them is a so-called "lock-in effect," which drags down prices and selling activity, while construction is subdued because of the heightened cost of borrowing.

Zhao's analysis suggests, however, that Powell believes tackling inflation remains more of a pressing concern—and remains the best medicine for the housing market.

In all, she believes that May's CPI data was a significant step in the right direction, which has not yet been priced into the Fed's decision-making process simply because it arrived too late.

"In the modern era of the Federal Reserve, Fed meetings are highly choreographed events where the schedule was set weeks ago," Zhao wrote.