The Fed's interest rate decisions impact mortgages, but the relationship isn't straightforward. Tharon Green/CNET
There's a wild amount of uncertainty in today's economy, but one thing is clear: The Federal Reserve isn't planning to lower interest rates this summer. Mortgage rates, which have been stuck near 7% for the past several months, are likely to stay higher for longer.
On June 18, Fed officials voted to leave borrowing rates unchanged for a fourth consecutive meeting. Holding interest rates where they are allows the central bank to evaluate how President Trump's unpredictable tariff campaign, immigration policies and federal cutbacks affect both inflation and the job market.
Often, what the central bank simply says about future plans can cause a stir in the housing market. Mortgage rates are driven by bond investors and a host of other factors, i.e., not directly determined by the Fed.
"The mortgage market reacts fast to uncertainty, and we've got no shortage of it this summer," said Nicole Rueth, of the Rueth Team with Movement Mortgage.
Why is the Fed not cutting interest rates?
The Fed sets and oversees US monetary policy under a dual mandate to maintain price stability and maximum employment. It does this largely by adjusting the federal funds rate, the rate at which banks borrow and lend their money.
When economic growth is weak and unemployment is high, the Fed lowers interest rates to encourage spending and propel growth. Reducing interest rates could also allow inflation to surge, which is generally bad for mortgage rates.
Keeping rates high, however, increases the risk of a job-loss recession that would cause widespread financial hardship. If unemployment spikes -- a real possibility given rising jobless claims -- the Fed could be forced to implement interest rate cuts earlier than anticipated.
"The Federal Reserve is in one of the trickiest spots in recent economic history," said Ali Wolf, Zonda and NewHomeSource chief economist.
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