No Rate Change from Fed as Officials Signal Extended Pause

In the just-released FOMC statement, the Fed kept the Fed funds rate unchanged. This keeps the Fed funds in a range of 3.50% to 3.75%. Despite the administration’s Supreme Court case against Chair Powell and all the rhetoric pressuring the Fed to lower rates, this is not a surprise to the market.

This breaks the cycle of three consecutive rate cuts and begs the question, what will the Fed need to see to resume rate cuts? That will boil down to one of two things: either the job market starts to worsen, or inflation begins moving convincingly lower towards 2%. And unless the job market suddenly worsens, the prospect of falling inflation triggering a rate cut isn’t expected by the market before June. In fact, at this moment, either of these factors, jobs or inflation, is not making a strong case for lower rates.

Without a refresh of dot plots today, Powell will face questions on how a no-cut decision was reached, which voters dissented, and whether he is as dovish as he was at the December meeting or if his posture has moved more firmly to neutral (think a longer pause than what the market expects). Of course, he’ll also be asked a barrage of questions around the administration’s criminal investigation and what he sees as the risk level it presents to the Fed’s independence to set monetary policy.

What’s Next?

With the resumption of the BLS employment surveys and announcements, the evolving job market will still hold significant sway over the market influence on the direction of rates. On inflation, does Powell still think it appropriate to “look through” tariff inflation effects? Will further reductions in inflation components occur?

These questions on the Fed’s dual mandates will take time to answer, and that’s why the market expectations for rate cuts have changed from the level they were at last fall. Current market expectations are for two 0.25% Fed funds rate cuts by the end of the year. How those translate to fixed-rate mortgage rates will depend on the circumstances that have the Fed making those moves.

The Treasury 10-year has been in a narrow trading range for some time now. But the possibility of evolving news regarding either mandate can quickly breed greater volatility. And volatility is the enemy of pipelines and especially pipeline volume growth.

What Do Borrowers Do Now?

Originators should explain to borrowers looking to finance the purchase of a home that even as term rates are still expected to modestly fall by the end of 2026, despite increases in available inventory, there remains a shortage of homes for sale for years to come. With the unusual news cycle we find ourselves in, the current mortgage rate market could quickly become much more volatile.

Borrowers aren’t looking to purchase a market trend or an inventory level. They are looking for a home that will meet their needs now and far into the future. After finding a home for purchase and getting an accepted offer, the best course of action is to secure financing quickly to avoid possible market volatility that could upend those plans. After a purchase transaction is complete, elite loan originators will monitor customers’ financing opportunities as the rate market evolves.