The Federal Reserve is playing a game of “red light, green light” when it comes to cutting interest rates. On Wednesday, the Fed’s decision-making body voted to leave its benchmark interest rate unchanged, pausing a rate-cutting path that was green-lighted in September.Does that mean average mortgage rates will be stuck near 7% for the short term? It all depends on one factor: the economy. Since starting his second term, President Donald Trump is moving forward on some of his policies around immigration and trade, which experts see as inflationary. “Higher tariffs and restrictive immigration policies would increase costs for homebuyers at a time when affordability is near a four-decade low,” said Matt Walsh, housing economist at Moody’s Analytics. While Trump has repeatedly said he’ll bring mortgage rates down to 3% (which would indicate the country is in a severe economic crisis), the president doesn’t set rates on home loans. Even the Fed’s policy decisions only indirectly impact the mortgage market.Regardless of the president’s promise to lower borrowing costs, if inflation remains high, so will rates. Mortgage rates are primarily driven by movement in the bond market, specifically the 10-year Treasury yield. If inflation ends up cooling and the Fed resumes easing rates, Treasury yields and mortgage rates could drop, even in anticipation of the Fed’s next move. Why is the Fed holding off on interest rate cuts?During his remarks following the Jan. 29 policy meeting, Fed Chair Jerome Powell said officials aren’t in a hurry to lower interest rates and that the central bank is waiting to see if inflation eases. Standing pat allows the Fed to evaluate the impact of policies enacted by the Trump administration. It’s logical to assume today’s decision will result in an extended pause rather than a one-month skip. Matt Graham of Mortgage News Daily says that if inflation drops significantly over the next two months, the earliest possible rate cut would be in March. However, most investors are betting another rate reduction won’t come until late spring or early summer. The Fed is already facing pressure from Trump, who recently demanded that interest rates drop, even though the president doesn’t have the direct power to carry that out. Aside from voicing his opinions, the president’s influence over the central bank is through naming appointees to fill vacancies on the Board of Governors. Though Trump could appoint Fed board members whose views on monetary policy align with his own, he can only make new appointments in early 2026. Will mortgage rates go down in time for spring homebuying season?Earlier last year, many economists optimistically predicted that interest rates would dip to 6% by late 2024. But since Trump’s reelection and the Fed’s shift away from rate cuts, the forecast for mortgage rates has been more pessimistic. Fannie Mae now expects average 30-year fixed mortgage rates to hold above 6.5% until early 2025. Meanwhile, Mood
Gio. Gen 30th, 2025
