Fed Holds Rates Steady As Markets Eye September Cut

The Federal Reserve has decided to hold its benchmark interest rate steady at a range of 4.25% to 4.5% following its two-day meeting on Wednesday. The decision aligns with market expectations as the central bank remains cautious amid persistent inflation.

Most market participants are now anticipating a rate cut in September, which could provide relief to the housing market even before it’s officially enacted. According to the CME Group‘s FedWatch tool as of Wednesday morning, only 3.1% of market participants anticipated a rate cut in July, whereas 55.9% expect a 25 basis-point reduction in September.

Recent labor market from the U.S. Bureau of Labor Statistics showed that employers added 147,000 jobs in June, bringing the unemployment rate down to 4.1%. These robust employment figures further reduced the likelihood of an immediate rate cut. Meanwhile, inflation rose 2.7% year over year in June — up from 2.4% in May — and increased 0.3% month over month.

“As predicted, the Fed’s decision to keep rates stable underscores the resilience of the U.S. economy despite tariff concerns,” said Joseph Panebianco, CEO of mortgage lender AnnieMac. “Resilient economies provide job security, which in turn provides homebuyers with the confidence needed to move forward despite affordability headwinds.” 

One or two rate cuts?

Monetary policy watchers are currently debating the Fed’s next steps.

Michael Nierenberg, CEO and president of asset manager Rithm Capital, which owns multichannel lender Newrez, told analysts during an earnings call on Monday that although geopolitical risks were a concern earlier in the second quarter, sentiment has since improved and companies now expect stronger earnings.

“The economy feels pretty good. While saying that, we do feel that we’re going to get one or two rate cuts this year,” Nierenberg said. He added that the Trump administration has “deal guys” to negotiate tariffs across the board and uncertainty is declining. 

Nierenberg also commented on the 10-year Treasury note, which historically correlates with the 30-year fixed mortgage due to its long-term duration.

“The curve will continue to steepen,” he said. “The government needs to continue selling lots and lots of debt to fund the deficit. So what we’re going to see over time, we think, is a steeper yield curve.”

Sam Williamson, senior economist at First American, expects the Fed to deliver a rate cut before the end of the year. But he noted that homebuyers could see relief even sooner as the market starts pricing in a policy shift. Softening mortgage rates often begin before the Fed takes formal action, if there’s certainty of the Fed’s direction, he added. 

“In mid-2024, mortgage rates fell ahead of the Fed’s 50-basis-point cut in September, as markets grew more confident that easing was imminent,” Williamson said in a statement. “A similar dynamic could emerge in the coming months, provided inflation continues to trend favorably.”

Support for housing market?

Selma Hepp, chief economist at Cotality, said that with growing evidence of a slowing economy, “the Fed will tilt closer to a rate cut in September.”

“Nevertheless, with home buying remaining weak and demand for newly built homes under growing pressure, along with the need for incentives, it is unclear how much support the housing market will receive as a result,” Hepp said. 

According to HousingWire’s Mortgage Rates Center, the average 30-year conforming loan rate remained near 7% as of Wednesday. Rates stood at 6.59% for Federal Housing Administration loans and 6.49% for jumbo loans. The conforming loan rate has remained above 6.8% since early April, when President Donald Trump announced new global tariff policies.

At its prior meeting in June, the Fed signaled it expects to lower the policy rate to 3.9% by the end of 2025 — implying two 25-bps cuts. For 2026, Fed projections suggest just one additional rate cut.

“What’s certain is that, when rates do drop, the mortgage industry is very astute at capturing refi opportunities for consumers,” said Geno Paluso, CEO of servicing fintech firm Sagent.

“New home starts and sales will continue to dwindle until lending prices come down for mortgage companies,” said Matt Pettit, president of California-based lender Mountain West Financial LLC.

“That said, the pressure to see an improvement in home sales is continuing to grow, without the benefit of the Fed lowering interest rates. There may be additional housing policies on the way to try to spur more home sales.”

Editor’s note: This is a developing story and will be updated after Fed Chair Jerome Powell’s press conference on Wednesday.