A Rate Cut Is Looking More Real

Uncategorized /

The Fed Nearing a Pivot: Why a Rate Cut Is Looking More Real

After holding rates steady at 4.25–4.50% since December 2024, the Federal Reserve signaled at its June 18 meeting that two rate cuts by year?end remain likely, albeit with caution due to inflation risk from tariffs and geopolitical uncertainty morningstar.com+9investopedia.com+9wsj.com+9apnews.com+3reuters.com+3investopedia.com+3. Chair Powell emphasized a “meeting?by?meeting” approach, watching key inflation and labor data—plus the full impact of tariffs before committing to cuts reuters.com+2investopedia.com+2themortgagereports.com+2.

Markets currently price in the first cut around September 2025, with another possibly in December investopedia.com. Morningstar analysts expect a 0.50?pp reduction across two cuts this year, followed by continued easing in 2026 nypost.com+15morningstar.com+15reuters.com+15. Should inflation continue cooling and the job market wobble slightly, the Fed would likely act—especially if tariffs further soften demand.

Mortgage Rates: Not A One-for-One Drop

Even if the Fed reduces the federal funds rate, mortgage rates won’t automatically fall in lockstep. Mortgage rates are tied to:

  1. 10?year Treasury yields and bond markets

  2. The “spread” between Treasury yields and mortgage-backed securities

Despite Fed cuts, mortgage rates have sometimes risen (e.g., late 2023) reuters.com+8themortgagereports.com+8wsj.com+8sfchronicle.com. Still, factors suggest that spread could narrow: Wall Street analysts note that the current gap (about 1.3–1.4?pp) may tighten to 1?pp in 2025, which could shave off ~0.3% from mortgage rates wsj.com.

Important to note: economists at Investopedia warn that even with Fed cuts, mortgage rates may not tumble immediately—they could remain stubbornly elevated in the mid-6% range marketwatch.com+5investopedia.com+5sfchronicle.com+5.

Current Trends & Forecasts

  • Mortgage rates recently eased to ~6.67% (30-year fixed), down from peaks around 6.82% themortgagereports.com+1ctinsider.com+1.

  • The Mortgage Bankers Association sees average rates near 6.8% in Q3 2025; the National Association of Realtors projects 6.4% .

  • Home finance officials argue that lowering policy rates would free up housing inventory by breaking the “lock-in” effect of high rates, moving more homes onto the market businessinsider.com.

What This All Means for Homebuyers

  1. Gradual Mortgage Rate Relief Ahead
    With Fed reductions around September, expect mortgage rates to edge down a few tenths—perhaps from ~6.8% to ~6.4% by late 2025, improving affordability.

  2. Stay Ready to Lock
    Lenders may not instantly pass on cuts. On the flip side, a 120?point credit score change or extra discount points could shave more points than waiting for the Fed.

  3. Refinancing Remains an Option
    If you buy now, retaining flexibility to refinance later can pay dividends—especially once spreads tighten.

  4. Policy Risk, Tariffs, Economic Surprise
    Powell is still gauging tariff-driven inflation. A sudden rebound could delay cuts—or even reverse them.

Bottom Line

  • Fed cuts look plausible this fall, pending cooler inflation and softer labor trends.

  • Mortgage rates are unlikely to plunge, but could resume a gradual decline—assuming bond spreads tighten.

  • Homebuyers should assess today’s rates, lender offers, and have contingency plans for refinancing.

Staying informed, comparing lenders, and preparing to act quickly can make all the difference—whether you’re buying, refinancing, or just keeping an eye on the housing market.