This past week, interest rates held steady even though the Fed didn’t cut and is forecasting higher rates for longer. Let’s break down what happened and what’s ahead.
“At first, I was afraid, I was petrified.
Thinking I could live without you by my side.
And after spending nights
Thinking how you did me wrong.
I grew strong.
And I learned how to get along.”
—I Will Survive — Gloria Gaynor
Fed Holds Rates Steady
Like I said, the Fed kept the Fed Funds Rate where it’s been — between 4.25% and 4.50%. This doesn’t directly affect mortgage rates but does impact short-term loans like auto loans, credit cards, and home equity lines.
The move was expected, but the updated economic projections caught some off guard:
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Unemployment forecast went from 4.4% in March to 4.5% now
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GDP forecast dropped from 1.7% to 1.4%
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Core PCE inflation forecast jumped from 2.8% to 3.1%
So, the Fed sees slightly higher unemployment, slower growth, but more inflation — especially the second half of 2025. That’s why they’re holding off on rate cuts for now and only planning a couple this year and maybe one a year for the next couple of years.
Powell called out “goods inflation” coming this summer because tariffs are about to kick in July 9, which will probably raise prices for consumers. He also admitted it’s tough to really figure out what’s happening in the economy right now.
Bottom line: The Fed’s stance could change fast once tariffs hit. Watch July 9 closely.
Homebuilder Sentiment
Homebuilders aren’t feeling great. The builder sentiment index hit its third-lowest level since 2012.
NAHB Chairman Buddy Hughes put it like this:
“Buyers are moving to the sidelines because of high mortgage rates and uncertainty around tariffs and the economy.”
That pretty much sums it up. Builders are worried about tariffs and rates staying stubbornly high.
Some Labor Market Weakness
Jobless claims have crept up a bit recently, which signals some softening. The Fed has said any more cooling in jobs would be a problem.
While Powell downplayed big layoffs, Microsoft just announced thousands of job cuts, especially in sales. If the labor market weakens more, the Fed could rethink its rate plans.
30-Year Mortgage Rates
The 30-year fixed mortgage averaged 6.81% on June 18, down slightly from 6.84% the previous week.
4.50% as a Key Level
The 10-year Treasury yield has been stuck around 4.50%, which is acting like a ceiling for bond prices. If it holds, it could keep mortgage rates from climbing.
If inflation cools and demand for bonds stays strong, rates might even come down.
Bottom Line
There’s still a lot of uncertainty about the economy and rates. Once we get more clarity on tariffs and fiscal moves like the “Big Beautiful Bill,” we’ll have a better idea where rates are headed.
Looking Ahead
Next week’s loaded with important data. The Fed’s favorite inflation gauge, Core PCE, is coming out, with May’s number expected around 2.6% — close to the Fed’s 2% target. We’ll also see GDP growth numbers and the Treasury will auction $183 billion in new debt, which could shake up the markets.
Mortgage Market Guide Candlestick Chart
Mortgage rates move with mortgage bond prices. When bond prices go up, mortgage rates go down, and vice versa.
The chart tracks the Fannie Mae 30-year 6.0% coupon. Prices jumped after inflation came in lower than expected. For rates to drop more, bond prices need to break above $101.50 — something we haven’t seen consistently in over eight months.