The Federal Reserve has opted to maintain its interest rates within a target range of 4% to 4.25%, awaiting the repercussions of tariffs instituted by President Donald Trump’s administration on the broader economy.
According to Federal Reserve Chair Jerome Powell, the central bank is well-positioned to observe the effects of these tariffs before making any decisions regarding future interest rate adjustments. The primary objective remains to bring inflation down to a 2% target rate. This decision follows a negative GDP growth reading for the first quarter, which indicated a decrease of 0.3%—marking the first negative GDP shift since early 2022.
“Despite a slight decline in GDP in the first quarter, which raises recession concerns, broader economic indicators reveal continued resilience,” remarked George Ratiu, the new Vice President of Research at the National Apartment Association, in his statement. He noted that the primary threats to economic activity stem from persistent financial pressures on households, compounded by increasing monthly expenses and the potential for rising layoffs.
The Fed had initially anticipated implementing two rate cuts this year; however, uncertainty surrounding the effects of tariffs has complicated this outlook. Powell indicated that the Fed is prepared to adapt its policy rates in response to forthcoming developments, whether that involves rate cuts or maintaining current levels.
“Despite increasing uncertainty, the economy remains in a strong position,” Powell stated during a press conference. “The unemployment rate is low, and the labor market is nearing its maximum employment capacity. While inflation has significantly decreased, it still runs slightly above our long-term 2% objective.”
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Mortgage Rates Stagnate Ahead of Summer Home Buying Season
With no impending rate cuts, housing affordability is set to remain a critical issue for many Americans seeking to either buy or rent, according to Ratiu.
Mortgage rates are expected to stagnate in the high 6% range, where they have stayed for the last six months without intervention from the Fed. Current home prices are approximately 50% higher than those in 2019, which translates to an average monthly payment of $2,200 for median-priced homes.
“The most optimistic outlook for mortgage rates suggests they will remain just above the 6% threshold for the next two years,” commented Victor Kuznetsov, co-founder and managing director of Imperial Fund Asset Management. He observed that many households are adopting a wait-and-see approach regarding mortgages, as they also attempt to curtail their consumer spending in light of economic uncertainties.
“On the bright side, strong employment and home prices suggest families may be better positioned to buy or refinance homes in the coming months, particularly should rates dip below 6%,” Kuznetsov added.
Mortgage rates are predicted to hold steady throughout the summer housing market, with the Mortgage Bankers Association suggesting that the Fed may resume cutting short-term rates in the latter half of the year. “If inflation eases as anticipated, mortgage rates are likely to gradually decline, potentially settling around 6% by the end of 2025,” stated Ryan Marshall, CEO of Voxtur.
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Lending Activity Increases Amidst Higher Rates
Despite the prevailing interest rates, some buyers are not delaying their purchases, with lending activities witnessing an uptick as consumers recalibrate their expectations, as per Michele Raneri, Vice President and Head of U.S. Research and Consulting at TransUnion.
“While there remains the potential for rate cuts later this year, the overall economic landscape is complex, and it’s premature to predict when or if those cuts will occur,” Raneri remarked. “However, we are witnessing some encouraging trends in lending, particularly in mortgages, home equity loans, and auto financing following a sluggish period.
“Nevertheless, these gains may be incremental until rates begin to decline, as many borrowers are hesitant to secure loans at the current rates, especially if they already have loans with considerably lower rates,” Raneri added.
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