In the just-released FOMC statement, the Fed announced no change in the Fed funds rate. The rate cut campaign that resulted in three rate cuts for a cumulative 1% policy rate reduction since September remains on hold for a second consecutive meeting. This keeps the Fed funds range at 4.25% to 4.50%.
A quick reminder: today’s Fed decision does not directly keep term rates like fixed mortgage rates unchanged, but it does influence them through market expectations for the economy, labor force, and inflation. Since a continuing pause in the Fed’s rate cut plan was expected, that was already baked into term rates — but any “new” news from the Fed today could still result in term rate changes.
Of note is the recent Treasury bond trading patterns that have been less impacted by realized economic indicators and have focused more on forward-looking expectations. With the dramatic actions being taken by the new administration, this was inevitable to some degree. And it bears recognition to the level of uncertainty driving the daily ups and downs of mortgage rates if not the actual path of rates over the intermediate term. These actions, especially with the tariff trade war and falling consumer sentiment, make it more difficult for the Fed to decide how long they wait for fresh data before they should react.
The “new” news today could come from the release of updated projections of the members’ “dot plot” projections. This is the first update to those projections since the Trump administration’s deportations, tariff actions, and DOGE Federal workforce reductions began. Other sources of surprise could come from revisions to the policy statement itself and Chairman Powell’s press conference.
What’s Next?
Over the past two months, we have seen dramatic changes to the number of expected rate cuts. At his press conference, expect Powell to be questioned about what additional uncertainty the Fed’s economic projections have incorporated from the administration’s actions and what that greater uncertainty level means for the timing of future actions.
Also, expect questions regarding the Fed’s announced plans to pause the runoff of its SOMA bond portfolio (pausing that “quantitative tightening” will provide some relief to the bond markets). Finally, Powell will also be asked about the implications for the economy of the return of the classic risk off trade, where equities have lost significant value, and to a degree that resulted in higher bond prices (lower rates).
We can expect the volatility in markets to continue as additional administration actions occur and the effects of those actions filter into the economy. Powell’s guidance on the length of this pause in the Fed’s forward path for rate normalization will be listened to closely. Changes to expectations of the landing rate and a now slower pace of rate cuts to reach it will set the stage for the market’s interpretation of economic indicators over the next few months.
Geopolitical events can create an added layer of rate volatility — specifically, the possibility for sudden rate drops, then a grind back to higher rates. The administration’s efforts to end the war in Ukraine, its recent attack on the Houthis in Yemen, and Israel's renewed actions in Gaza will also keep pressure on the level of volatility.
If economic indicators show more modest impacts from the administration’s actions over time, lower rate projections will factor back into rates. To some degree, the level of uncertainty will control how quickly that will be seen in mortgage rate sheets.
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, the current mortgage rate market remains exposed to greater-than-typical levels of uncertainty within a typical rate lock period.
The available housing inventory remains tight 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.
