Mortgage market reacts to inflation concerns
A potential new escalation in the trade war could impact the inflation outlook, with ripple effects likely to reach the US housing and mortgage markets. According to J.P. Morgan Global Research, tariffs announced in recent weeks could increase Personal Consumption Expenditures (PCE) by as much as 1% to 1.5% this year. This inflationary pressure is poised to delay potential interest rate cuts by the Federal Reserve.
“Given imperfect pass-through and margin compression, a more likely estimate is 0.2 to 0.3 percentage points,” said Michael Feroli, chief US economist at J.P. Morgan. “We think this bolsters the case for the Fed to take a very cautious approach to rate cuts.”
As the Fed holds its stance to anchor long-term inflation, the prospect of lower mortgage rates in the near term appears increasingly unlikely. This policy direction may keep borrowing costs elevated, further cooling homebuyer activity and refinancing demand already dampened by economic uncertainty.
Trade tensions spread globally
While the US and European Union are reportedly nearing a trade deal, Trump has announced plans for a 30% tariff on EU goods shipped to the US, arguing that a trade deficit poses a potential threat. A deal with Japan is set at a 25% tariff level, while the Philippines and Indonesia accepted 19% tariffs in exchange for exemptions on US exports.
Trump warned of pending letters to over 150 smaller US trade partners outlining new baseline rates, with Treasury secretary Scott Bessent anticipating more agreements in the coming days.