In the just-released FOMC statement, the Fed announced no change in the Fed funds rate. The rate cut campaign remains on hold for a fifth consecutive meeting. This keeps the Fed funds range at 4.25% to 4.50%.
A continuing pause in the Fed’s rate cut plan was expected, and that was already baked into term (fixed mortgage) rates. The focus is on whether the fresh dot plot release changes the two rate cuts projected for 2025 that were in the previous release. That, and any “new” news from Chair Powell’s press conference, could still result in term rate changes.
A lot of water has passed under the bridge since the May FOMC meeting. The bond markets have settled into a range that implies traders and investors are more comfortable. The tariff war has softened, and the jobs market has slowed but is still growing. That leaves the evolution of inflation and U.S. Treasury sponsorship in light of Moody’s downgrade as the primary drivers of uncertainty. And within that context, the one big, beautiful bill making its way through Congress is providing the fodder for the level of uncertainty that continues in day-to-day rate movement.
The “new” news today will come from the dot plots, revisions to the policy statement, and from Powell’s press conference. It’s likely Powell will be asked about his meeting with President Trump, what he was asked, and what his responses were. Expect Powell to stay the course, avoiding any political responses today.
What’s Next?
Term rates may react to a shift in the dot plots. If they change the likelihood of rate cuts in 2025, then expect to see term rates react in kind. That will factor in trading patterns driving the path of rates until the next FOMC meeting on July 30.
During this time, the outcome of the budget bill and the course of inflation readings will be front and center. Another principal story is the war in the Middle East. The market reaction has not been a flight to quality, but rather a trade on the inflation pressure coming from a possible material impact on the supply of oil. This in itself is a complicated situation to navigate, as it also has the appearance of making a statement on the safe haven quality Treasuries have played in times of geopolitical crisis (the “risk off” trade).
It's these crosscurrents that have fogged forward expectations for rate declines. Both in degree and timing. If the hard data economic indicators continue to show modest inflation impacts from the administration’s tariff actions, if the budget bill passes with revisions that reduce the deficit impact of initial projections, more rate cuts and lower rate projections will factor back into rates. In the meantime, markets will watch inflation measures coming down to 2% and employment trends.
What Do Borrowers Do Now?
Originators should explain to borrowers looking to finance the purchase of a home that even as rates are still expected to fall over time, albeit at a slower pace, the current mortgage rate market remains exposed to greater-than-typical levels of uncertainty within a typical rate lock period.
The available housing inventory is improving in some markets but remains tight by historical standards and will remain so for years to come. After finding a home for purchase and achieving an accepted offer, the best course of action is to secure financing quickly to avoid possible market volatility that could upend those plans.
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