Fed Debate Shakes Markets
Last week, mortgage rates stayed steady as the Fed Minutes from their previous meeting dropped. Let’s break down what went down and what we need to watch for next week.
“I’ve got a worried mind, and it’s tearing me apart / I’m trying to find some peace in my heart.” — Worried Mind by Ellen Jewell
The Fed Minutes Summary
Here’s the takeaway from the Fed Minutes—basically, what Fed members were thinking about the economy, inflation, the labor market, and the direction of rates.
Fun fact: two Fed officials preferred to cut rates. That’s the first time in over 30 years we’ve seen dissent like this.
Picture the Fed’s July 2025 meeting like a high-stakes family budget debate. But instead of arguing pizza vs. tacos, the FOMC is juggling the nation’s economic menu: inflation, jobs, growth, and trade policy drama on the side.
The minutes show a group of policymakers trying to keep a cooling economy, sticky inflation, and tariffs in check—all while keeping markets calm and avoiding another bond market “kerfuffle.” The result? They held the federal funds rate steady at 4¼–4½%, but not without some lively debate.
Economy-wise, things are okay, just not thriving. Growth in the first half of 2025 was sluggish, with GDP barely jogging along. Slower consumer spending and a dip in housing investment are to blame.
Inflation is still hanging around at 2.8% (PCE y/y)—like that guest who won’t leave—well above the Fed’s 2% target. Tariffs are stirring prices up, though services inflation is easing. Meanwhile, the labor market is resilient at a 4.2% unemployment rate, but whispers of softening demand exist—fewer job postings, pickier hiring managers.
Fed members noted tariffs and policy uncertainty are making businesses hesitant to hire or invest, like someone holding off on a big purchase because they’re unsure if the price will spike tomorrow.
The Fed expects near-term inflation to creep up due to tariffs but hopes it’s a one-time bump, not a long-term headache. They’re watching inflation expectations closely because no one wants a 1970s redux.
On the labor side, there’s worry that jobs could cool if growth slows further or tariffs hit harder than expected. Their game plan? Stay alert, keep rates steady for now, and pivot if the data demands it.
Bowman and Waller wanted a 25-basis-point cut, arguing inflation minus tariffs is close to target and the economy has wobbles. The majority held firm, waiting for indicators to stabilize.
Financial markets are optimistic—equities are climbing, credit spreads tightening, tech riding the AI hype wave. The dollar dipped slightly, Treasury yields steady, but there’s caution around tariffs and potential reserve declines. The Fed’s balance sheet is shrinking smoothly, and they’re watching money market rates like hawks.
Stocks Tech Wreck
This week the NASDAQ and tech shares took a hit after some underwhelming AI earnings. Keep an eye on this—September is historically the worst month for stocks, and history tells us that when stocks dip, mortgage rates often follow.
30-Year Mortgage Rate
The 30-year fixed averaged 6.58% as of August 21, 2025, unchanged from last week.
The 10-year Treasury Note yield, which tends to move with mortgage rates, stayed in a 4.20–4.50% range.
Bottom Line: Mortgage rates are near 10-month lows, but rates could tick higher soon. Mortgage bond prices are below the ceiling needed for lower rates—see the chart below.
Looking Ahead
Next week is packed with market-moving economic data, including the Fed’s favorite inflation gauge: Core PCE. Right now it’s 2.8% y/y and expected to stay there—still above the Fed’s 2% target.
⚡That’s your Hutch’s Market Minute for the week. Rates are in a sweet spot, but the market rarely hands out second chances.
Mortgage Market Candle Stick Chart
The chart shows mortgage prices stuck in a range with a ceiling (upper yellow line) limiting further price improvement and rate decline. With prices near the ceiling than the floor, there is more pricing ground (thus rate spike) to lose if prices remain in this range.
Chart: Fannie Mae 30-Year 5.5% Coupon (Friday, August 22, 2025)
Economic Calendar for the Week of Week of August 25 – 29
