The Federal Reserve held steady on its anchor federal funds rate after a widely anticipated July meeting, keeping it at 5.25% to 5.5% for now. That, in and of itself, was broadly expected.

But all eyes were also on the Fed after this meeting for a sign — any sign — that it was inching closer to the elusive “confidence” it needs to kickstart its rate-lowering cycle, perhaps in September. “Confidence” has been a buzzword for Federal Reserve Chair Jerome Powell since its aggressive anti-inflation policy of rate increases was adopted more than two years ago. And on Wednesday, Powell hinted that some of that confidence may already have been achieved.

“We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%,” Powell said at his customary post-meeting press conference. “The second quarter’s inflation readings have added to our confidence and more good data would further strengthen that confidence.”

Indeed, while inflation remains above the long-run target of 2% that Powell mentioned, recent indicators have been very favorable, especially compared with some readings earlier in the year that indicated inflation was stickier than previously thought. Job growth has been healthy but slowing. The Consumer Price Index, a closely watched inflation indicator, fell month over month for the first time in more than four years. And the Personal Consumption Expenditures (PCE) index, a preferred inflation metric for the Fed, eased annually to 2.5% in June.

So, when Powell, normally unflappably evasive when it comes to forward-thinking statements, even overtly breached the possibility of a September rate cut, it was particularly noteworthy.

“On September, let me say this,” Powell said. “We have made no decisions about future meetings, and that includes a September meeting. The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate. … It will not be a question of responding specifically to one or two data releases. The question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market.

“If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”

Powell followed that up with some specifics on a scenario in which a rate cut would be appropriate.

“If we were to see, for example, inflation moving down quickly — or more or less in line with expectations — growth remains, let’s say, reasonably strong and and the labor market remains consistent with its current condition, then I would think that that a rate cut could be on the table at the September meeting,” he said.

Powell in fact noted that there was “a nice conversation” during the meeting regarding a July rate cut.

“We’re not quite at that point yet,” he said. “We want to see more good data. The decision [to leave rates as is] was unanimous. All 19 participants supported it. But you know, there was a real discussion back and forth of what the case would be for moving at this meeting.”

The central bank chair did at multiple points reiterate that a September cut shouldn’t be taken as concrete at this point. All in all, it’s not quite music to the ears of a restless, long-suffering mortgage industry, although a crescendo certainly feels near, according to Marty Green, principal at mortgage law firm Polunsky Beitel Green.

“The Federal Reserve sounds increasingly like a broken record, although now the track may be stuck on Carly Simon’s ‘Anticipation,’ he quipped. “While markets continue to believe that the Fed is poised to reduce the discount rate in September, the data-dependent Fed appears to want even more data before telegraphing a definitive timing for this move. While a September cut is still very much in the cards, it doesn’t appear to be guaranteed at this point.  But it sure feels like the Fed believes that the rates are getting very close to being ‘higher for long enough’ instead of ‘higher for longer.’”

Melissa Cohn, regional vice president at William Raveis Mortgage, said that when the Fed finally does start cutting rates, expect mortgage rates to react gradually.

“The rates are going to come down an eighth of a point at a time, the same way that the Fed is only going to cut rates a quarter point at a time, probably. So, it’s a little bit of a slow drip,” she said.

Granted, even with a potential cut in the foreseeable future, Eric Orenstein, senior director at Fitch Ratings, cautioned that a rate shift may not be a cure-all salve for the ailing housing market.

“Even with a September rate cut possible, mortgage companies will continue to face meaningful earnings headwinds for the foreseeable future,” Orenstein said. “With most outstanding mortgages still carrying rates below 5% and record home prices driving down affordability, it may be a long road back to higher origination volumes.”

Jack McDowell, chief investment officer at Palisades Group, is keeping an eye on how the impending rate shift affects buyer demand — and those record home prices.

“The persistent supply-demand imbalance across many U.S. housing markets continues to lead national home prices to all-time highs. We believe this will be top of the Federal Reserve’s mind heading into the September FOMC meeting. Still, the market anticipates at least two rate cuts before the end of 2024, and we expect any drop in mortgage rates to result in further pressure on housing price inflation due to the pent-up demand that would release into an undersupplied market.”