Help from the Federal Reserve in the form of lower benchmark rates is unlikely to arrive this month. The CME Group’s FedWatch tool on Tuesday showed that 95% of interest rate traders believe the federal funds rate will remain in a range of 4.25% to 4.5% when the Federal Open Market Committee meets at the end of July.
The potential for rate cuts were higher at the start of 2025 but began to slip lower in April after President Donald Trump announced sweeping global tariffs. While the implementation date for many tariffs has been pushed back — including this week’s announcement that the new deadline is Aug. 1 — financial markets and policymakers have remained wary of renewed inflation as a result of the tariffs.
On Tuesday, HousingWire Lead Analyst Logan Mohtashami wrote that another Fed meeting without a rate cut is highly likely after the June jobs report from the U.S. Bureau of Labor Statistics showed that 147,000 nonfarm payroll jobs were created last month, beating analysts’ expectations.
Barring a perfect storm that includes an increase in jobless claims, softer inflation and key trade deals being reached, Mohtashami believes the fed funds rate isn’t changing in July.
“My perspective has always been that the labor market needs to weaken significantly for the Federal Reserve to truly pivot, or for bond yields to decline enough to bring mortgage rates below 6%,” he wrote. “Currently, the labor market is showing signs of softening, but it hasn’t yet truly broken. Now, we have more trade war news, and the bond market is not pleased with the trade war at all.”
About two-thirds of interest rate traders surveyed by the CME Group believe there will be a rate cut in September — but that share declined significantly in the past week after reaching 93%.
Mortgage market reaction
July’s Mortgage Monitor report from ICE Mortgage Technology indicated that higher rates among homebuyers who purchased property in recent years may be contributing to household financial strain.
But the report mainly pointed fingers at the resumption of student loan payments as about 20% of all mortgage holders have student debt. That figure jumps to about 30% among FHA borrowers. And ICE reported that borrowers who are delinquent on student loans are four times more likely to have a delinquent mortgage.
“While the slowdown in home-price growth may be easing affordability pressures, and negative equity volumes remain low, we’re beginning to see localized pockets of recent homebuyers becoming financially exposed,” said Andy Walden, ICE’s head of mortgage and housing market research.
But rates have come down enough to present a refinance window to a significant chunk of the borrower population. Following last week’s release of mortgage application survey data, the Mortgage Bankers Association (MBA) said that it expected refi origination volume to finish this year at $668 billion — a 36% increase compared to 2024.
“Mortgage rates declined to close out the first half of 2025, falling to their lowest levels since February,” Bob Broeksmit, the MBA’s president and CEO, said in a statement. “The downward trend in rates has boosted refinance demand, with activity up 7 percent last week and 40 percent higher than one year ago.”
On a recent episode of its New Home Insights podcast, John Burns Research & Consulting discussed the impact of “choppy economic seas” on the housing market.
Guest Neil Dutta, the head of economic research at Renaissance Macro Research, said that the recent increases in new-home supply are likely to subside as some locations experience oversupply, meaning that “builders are going to be focused more on selling the homes they’ve already made as opposed to breaking ground on new homes.”
Dutta also sees a number of dark clouds forming on the horizon for the U.S. economy that are likely to filter into housing.
“I see continuing jobless claims going up. I see housing inventory is going up. I see home prices coming down,” he said. “I see very sluggish growth in business investment, particularly outside of AI. … It may not be a full-blown recession, but it’s not good. And it’s also foolish to think that it stabilizes on its own, right?
“So, I think that’s what’s important. Ultimately, stabilizing the economy is going to require some kind of a policy response from the Fed.”