As the Federal Reserve likely holds interest rates steady, mortgage rates are expected to stay in a narrow range. Tharon Green/CNET
The Federal Reserve held interest rates steady for the fourth consecutive time this year at its monetary policy meeting this week. However, rising jobless claims, intensified geopolitical conflict and slowing economic growth could force the central bank to cut rates as early as the fall.
As turbulent trade policies pressure financial markets, investors have been wondering how President Donald Trump would influence the Fed's interest rate forecast. Trump has repeatedly scolded the Fed for not lowering borrowing costs already. The central bank is cautiously projecting two rate cuts in 2025.
The Fed is tasked with maintaining maximum employment and containing inflation, primarily through setting its short-term benchmark interest rate for lenders. A sluggish economy typically warrants interest rate cuts to stimulate growth, but lowering rates too quickly could fuel price growth when inflation is still above target.
At the same time, the Fed only indirectly impacts the mortgage market. In 2024, the central bank cut interest rates three times, but mortgage rates didn't fall.
According to Bankrate data, the average rate for a 30-year fixed mortgage has moved in a narrow range between 6.7% and 7% since mid-April. Though housing affordability was expected to gradually improve in 2025, uncertainty over the direction of the economy has altered those forecasts. Most economists say mortgage rates will stay above 6.5% for the better part of the year.
"You'd need to see mortgage rates pretty far below current levels, certainly below 6.75%, to incentivize homebuyers," said Beth Ann Bovino, chief economist at U.S. Bank. "Everybody's in a wait-and-see mode, not just the Fed," Bovino added.
Mortgage rates aside, prospective homebuyers are also contending with a long-standing housing shortage, high home prices and a loss of purchasing power due to inflation.
"Prices are still incredibly high," Bovino said. "Add to that the borrowing costs of a mortgage, and it's prohibitively expensive for most people to get into the housing market."
Experts say many of the Trump administration's policies, such as tariffs, could cripple housing affordability even further, putting upward pressure on interest rates and the cost of building materials, like lumber, used to build new homes.
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