As was expected, the Federal Open Market Committee on Wednesday voted to keep the fed funds rate at 4.25% to 4.5%, however, two committee members broke ranks and voted against the measure, strengthening the odds of a rate cut later this year.
Michelle W. Bowman and Christopher J. Waller expressed their preference to lower the target range for the federal funds rate by 0.25 percentage point. This could be an indication of weakening support for Fed Chair Jerome Powell, who has been under extreme pressure by President Trump to cut rates.
In its statement, the committee says although “net exports continue to affect the data … the unemployment rate remains low and labor market conditions remain solid.” The committee notes that inflation remains somewhat high at 2.7% – well above its target of 2% – and uncertainty about the economic outlook remains elevated, leading it to decide to keep rates flat for the near-term.
“The news from today’s FOMC meeting was that two governors, Bowman and Waller, dissented from the decision to keep rates steady at this time,” says Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association (MBA), in a statement. “The FOMC statement acknowledges that economic growth has moderated but given the uncertainty about the future paths for inflation and unemployment, the majority of the FOMC members determined that the better course was to hold rates steady for now.”
“The dissenters had previewed their arguments in recent speeches,” Fratantoni says. “Their concerns are that the Fed would be better to cut rates now, before weakness in the job market becomes more apparent. While the tariff increases could well lead to a pickup in inflation, the dissenters view that the increase is likely to be short-lived.”
“MBA’s forecast is that conditions will evolve such that the Fed will cut rates twice this year and once more in 2026,” Fratantoni continues. “Softening in the job market is likely to be the primary driver to have the FOMC move its short-term rate target down and closer to neutral.”
“Unfortunately for the housing and mortgage markets, the Fed’s actions with respect to short-term rates are likely to have little impact on longer-term rates, including mortgage rates,” Fratantoni adds. “MBA’s forecast is for 30-year fixed mortgage rates to move just a little lower to perhaps 6.5 percent over the next year, as longer-term rates continue to be impacted by large deficits and debt and the growing issuance of Treasury securities to fund those deficits, which will likely keep mortgage rates near today’s level even as the Fed loosens monetary policy.”
“The home lending industry remains optimistic of a rate cut this year, but it looks to be some time before the Federal Reserve enacts an interest rate cut decision,” says Matt Pettit, president, Mountain West Financial, in a statement. “New home starts and sales will continue to dwindle until lending prices come down for mortgage companies. That said, the pressure to see an improvement in home sales is continuing to grow, without the benefit of the Fed lowering interest rates. There may be additional housing policies on the way to try to spur more home sales.”
“As expected, the Federal Reserve decided to keep the federal funds rate steady this week at 4.25 to 4.50 percent,” says Samir Dedhia, CEO of One Real Mortgage, in a statement. “Inflation has cooled off from last year’s highs, but still sits above the Fed’s 2 percent target. With recent talks of new tariffs, especially on goods coming from overseas, there’s concern that prices could start climbing again. The Fed is choosing to stay patient and cautious, giving itself more time to see how these global developments and inflation trends unfold.”
“According to the Fed, the economy is still growing at a solid pace,” Dedhia says. “The job market remains strong, with unemployment staying low and consistent. While some of the economic uncertainty has eased, there are still risks that could shift things quickly. That’s why the Fed is continuing to monitor all the data closely before making any major moves. They’re also slowly reducing their balance sheet and staying focused on keeping inflation in check while supporting a healthy job market.”
“We’ve already seen mortgage rates come down over the past couple of months, which has helped bring some relief to homebuyers,” Dedhia adds. “I believe that trend will continue, with rates either holding steady or drifting lower through the rest of the year. While other borrowing costs like credit cards and auto loans remain high, the overall outlook is encouraging. I expect the Fed to cut rates twice in 2025, which should offer even more support to the housing market and the broader economy.”
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