Fed resists pressure to lower rates at July meeting
Despite increasing calls for cuts, Fed Chair Jerome Powell held steady on rates as inflation remains elevated, and he has made “no decisions about September.”
In a move that appears to reaffirm the Federal Reserve's independence, Chairman Jerome Powell announced today that the board will continue to maintain short-term interest rates at current levels.
It's not what many in the real estate industry were looking for, but the Fed indicated that holding rates steady is still necessary to knock down inflation — which could eventually lead to lower mortgage rates.
Resisting White House demands: President Donald Trump, who had reportedly threatened to fire Powell, said last week that he believed the Fed chair would "do the right thing" and lower rates. Trump has repeatedly insisted on rate cuts, and both he and FHFA Director Bill Pulte have called on Powell to resign. For his part, Powell has said the administration's rhetoric has no impact on his decisions regarding monetary policy.
'Best thing' for housing is low inflation, high employment: During a news conference following the board's July 30 meeting, Powell acknowledged that the Fed has little control over housing market activity, which he called weak.
"I think the best thing we can do for housing is to have 2% inflation and maximum employment," Powell said.
The dissenters: While keeping the federal funds rate at the 4.25% to 4.5% range, some members of the committee have indicated that it's time to start lowering the rate despite the current 2.7% inflation rate. Fed governors Michelle Bowman and Christopher Waller, who had both called for a July rate cut, voted for a quarter-point cut during the meeting.
Walking a tightrope: The Fed continues to face a tricky balancing act — while lowering short-term rates would be helpful in reducing costs for home builders, it may not help homebuyers right now. That's because investors and the bond market have more influence on what happens with mortgages, said Robert Dietz, chief economist at the National Association of Home Builders.
"While the economy would benefit from a resumption of monetary policy easing, impactful reductions for long-term interest rates depend on declines for inflation expectations, improvement of the government's deficit outlook, and gains for productivity for the economy," Dietz said in a blog post.
'No decisions' about September: Whether a rate cut comes at the Fed's next meeting in September will depend on both inflation and labor market data, Powell said. The Fed will have two months of reports to digest, which could provide some insight into the impacts of tariffs on consumer prices and whether the elevated short-term rates are hurting the job market.
"We have made no decisions about September," Powell said. "In the coming months we'll receive a good amount of data that will help inform our assessment of the balance of risks and the appropriate setting of the federal funds rate."
There has been little consensus among analysts on rate cuts, but some are expecting one or two cuts this year, starting in September.
The investor effect: Investors will also be watching economic data, and that could influence where mortgage rates go prior to the September meeting, said Lisa Sturtevant, chief economist at Bright MLS. That's what happened a year ago when the Fed began telegraphing a rate cut, ultimately choosing to cut rates by 50 basis points in Sept. 2024.
"If markets believe the Fed is going to cut rates in September, it is possible that we could see mortgage rates edge downward at the end of the summer," Sturtevant said. "However, there are other factors still in play that could just as easily keep mortgage rates higher. If inflation does not continue to fall, that could prop up mortgage rates. And if investors believe the Fed cut rates under pressure from the Trump administration, that will also drive mortgage rates higher."