Favorable Fed Meeting 

While there were no major surprises, the Fed meeting was modestly favorable for mortgage markets overall. The biggest economic report released this week revealed that consumer spending was close to expectations and had little impact. As a result, mortgage rates ended the week lower.

As expected, the Fed left the federal funds rate unchanged at a target range of 4.25% to 4.50% on Wednesday. The meeting statement made clear that the current level of uncertainty is "unusually elevated," and officials will wait to see the impact of government policy changes to determine adjustments to monetary policy. The "dot plot" projections from Fed officials for future rate cuts were similar to their last set of dot plots released three months ago, with forecasts for two additional 25 basis point rate cuts in 2025 and two more in 2026. In addition, the Fed will slow the reduction in its holdings of Treasuries on its balance sheet, while keeping the same pace for mortgage-backed securities. Officials also raised their outlook for core inflation in 2025, but they still forecast hitting their annual target of 2.0% in 2027. Bond investors were pleased that the rate cuts remain on track despite the higher inflation forecast and that the Fed will retain more bonds each month. 

In the past, a monthly report on import prices from the Bureau of Labor Statistics has generally not received much attention, but investors are keeping a closer eye on it now with tariffs in the spotlight. Import Prices in February, expected to be roughly flat from January, instead climbed 0.4%, boosted by higher costs for consumer goods. This is important because import prices are measured before any tariffs are imposed. One big question is whether exporters in other countries will lower their prices to at least partially offset higher tariffs or whether U.S. households and businesses will absorb the costs. 

Investors will continue to watch for additional information about tariff policies. For economic reports, New Home Sales and Consumer Confidence will come out on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday.