Rates Held Steady as Fed Cites Increasing Uncertainty
In a recent Federal Open Market Committee (FOMC) release, current indicators show that economic activity has continued to grow steadily, as the unemployment rate has remained low and constant in recent months, while the labor market is performing well—however, inflation remains somewhat elevated.
At the end of its bi-monthly meeting on Wednesday, May 7, the Federal Open Market Committee declared that it would maintain the federal funds rate between 4.25% and 4.50%.
The Committee will keep an eye on the effects of new information on the outlook for the economy in order to determine the proper stance of monetary policy. If risks materialize that could obstruct the Committee's objectives, the Committee would be ready to modify the monetary policy stance as necessary. Readings on labor market conditions, inflation pressures and expectations, and financial and global developments are only a few of the many pieces of information that will be considered in the Committee's evaluations.
Federal Reserve Board Chair Jerome H. Powell, Vice-Chair John C. Williams, Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Austan D. Goolsbee, Philip N. Jefferson, Neel Kashkari, Adriana D. Kugler, Alberto G. Musalem, and Christopher J. Waller voted in favor of the monetary policy action. At this meeting, Neel Kashkari cast an alternate vote.
“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace,” said the FOMC in a statement. “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.”
As stated in their post-meeting statement, the FOMC's long-term objective is to attain maximum employment and inflation at a rate of 2%.
“Due to inflation still running higher than expected, mortgage rates are likely to remain flat through the summer housing market,” said the Voxtur CEO of the Fed’s announcement. “Furthermore, with continued uncertainty surrounding tariffs and their impact on the global economy, the bond market is facing increased volatility, which is having a destabilizing effect on mortgage investments in the secondary market. Heading into the fall, if inflation cools as expected, mortgage rates will begin to dip slowly and steadily, finishing out 2025 around 6%.”
When deciding how to move the federal funds rate next, the FOMC declared that it would do the following:
- Carefully assess incoming data, the evolving outlook, and the balance of risks.
- Continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.
- Continue its commitment to supporting maximum employment and returning inflation to its 2% objective.
“Uncertainty about the economic outlook has increased further,” said a statement from the FOMC. “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
According to Mike Fratantoni , SVP and Chief Economist of the Mortgage Bankers Association (MBA), “MBA forecasts that the risks to growth and the job market will wind up being the bigger concern this year, which will lead the Fed to resume cutting short-term rates in the second half of the year. Until then, the hard data on inflation and unemployment will continue to drive interest rates, including mortgage rates, from one end of a trading range to the other, with only a slight downward trend in mortgage rates over the remainder of 2025.”
Measuring Tariff Impacts & Economic Conditions
In a speech at the Economic Club of Chicago in April, Federal Reserve Chair Powell stated that President Trump's tariffs would probably cause prices to rise more quickly and hinder future economic expansion.
The Chair of the Federal Reserve stated last month that "the amount of the tariff increases announced thus far is substantially larger than anticipated." "The economic effects, which will include slower growth and higher inflation, are probably going to be the same,” Powell said.
Although employment and layoffs may have an effect on the country's housing market, the Trump administration is still reducing the size of the federal workforce.
“[…] we’ve had a major tariff announcement and rising economic uncertainty as consumers report concern about their personal financial situation, the likelihood of losing a job, and the general business outlook, with the expectations component of consumer confidence falling to its lowest since October 2011 in the April preliminary data,” said Danielle Hale, Chief Economist at Realtor.com. “Nevertheless, both March and April jobs reports showed a still healthy labor market, with unemployment at 4.2%.”
Hale added, “Still-high costs stemming from high home prices and elevated mortgage rates are a particularly tough hurdle for first-time homebuyers, a factor that caused a dip in the U.S. homeownership rate in the first quarter. Those who plan to move forward in the search for a home are not only likely to have more time to make decisions in a slower-moving housing market, they are also likely to see more flexibility from sellers, which is a welcome development.”
Federal layoffs have had a knock-on effect on the D.C. metro housing market alone, as Redfin reports that during the four weeks ending April 27, active listings of homes for sale in the Washington, D.C. area jumped 25.1% year-over-year to the highest levels since 2022—the largest gain on record. Additionally, D.C. new listings increased 11.4% year-over-year to reach their greatest level since 2022, nearly doubling the 5.8% national rise, according to Redfin.
“Purchase mortgage application volume continues to run ahead of last year’s pace,” said Fratantoni, “and the MBA forecasts that will be true for the year as a whole, even with the rate volatility we have experienced.”
As of May 1, 2025, the 30-year fixed-rate mortgage (FRM) averaged 6.76%, which was lower than the previous week's average of 6.81%, according to Freddie Mac. This time last year, the 30-year FRM averaged 7.22%.
“Fed officials are signaling a wait-and-see approach to the impact global trade uncertainties will have on the U.S. economy,” said Dr. Selma Hepp, Chief Economist of Cotality. “The Fed is trying to straddle keeping inflation moving towards the target and ensuring employment doesn’t cool considerably more—not an easy task given the current policy context. One thing is for certain, interest rates are highly unlikely to dip down to 2021 levels, when rates hovered around 3%. We foresee a 6% mortgage rate, or higher, to be the new normal for the 30-year fixed mortgage for the next two years.”
Tim Lawlor, CFO of Kiavi, discussed further challenges that could affect the housing market in the upcoming months.
“In the housing market, investor strategy and affordability remain top of mind. Real estate investors should prepare for a potentially uneven summer as inflation, tariffs and labor construction shortages continue to push up the cost of doing business,” said Lawlor. “We’re also watching the bond market’s reaction to global trade uncertainty closely, as this will influence long-term financing costs. Some markets, particularly in the Midwest and Northeast, are showing renewed strength, while others further South are seeing longer days on market and rising inventory levels. As always, real estate investing is about managing risk. Our best advice for investing in any market is always to do your research down to the zip code and diversify your exit strategies.”
Overall, there is now much more uncertainty over the economic prospects. The FOMC has made certain that the Committee is aware of the dangers to both sides of its dual objectives and concludes that there is a greater chance of both higher inflation and higher unemployment.
“The best-case scenario for mortgage rates is to hover just above the 6% mark for the next two years,” noted Victor Kuznetsov, Co-Founder and Managing Director of Imperial Fund Asset Management. “The average American household has adopted a wait-and-see strategy regarding mortgage rates, as they also seek to reduce their monthly consumer spending, amid current economic uncertainty. The good news is that employment and home prices remain strong, so families will be in a better position to buy or refinance a home in the coming months, especially if rates dip below 6%.”
Recent signs indicate that economic activity has continued to develop at a steady pace, despite data being impacted by fluctuations in net exports. Per the report, the job market is still doing well, and the unemployment rate has been stable at a low level in recent months— despite inflation remaining fairly high and persistent affordability challenges affecting millions of Americans.d