Any change in mortgage rates could be muted in the near term
Fed Chair Jerome Powell said on Tuesday that the bond market has already priced in more rate cuts, suggesting further mortgage rate declines may be limited. (Andrew Harnik/Getty Images)
In his first public remarks since last week’s interest rate cut, Federal Reserve Chairman Jerome Powell said Tuesday that the bond market has probably priced in future rate moves, suggesting that homebuyers may have already seen the immediate effect on mortgage rates.
"You’ll see, you’ll begin to see, or you’re already seeing, changes in rates. Long before we make a decision, it can often already be priced in,” Powell said in an appearance in Providence, Rhode Island.
Powell explained that mortgage rates, which are closely tied to the bond market, don’t respond to the Fed’s current interest level but rather to where investors expect monetary policy to be headed. That often means rates start moving months before any Fed decision is made.
His remarks signal that further mortgage rate declines may be limited. “These days the market is pricing in the next six months what's going to happen to rates,” Powell said.
Carl Gomez, senior economist at Homes.com, echoed that belief. "Recent bond yields movements suggest future rate cuts may not be that deep," Gomez said. "That would imply that mortgage rates may not revisit the lows seen during the last decade. ... That means a potential resurgence of housing market activity may not follow as the Fed cuts rates during this cycle."
This dynamic played out last year when the Fed cut the federal funds rate by 100 basis points. Instead of mortgage rates falling, homebuyers saw a 100-basis-point rise due to higher inflation, reinforcing the influence of broader economic factors.
Powell made his remarks a week after the Fed cut its benchmark interest rate by a quarter percentage point, its first reduction since December 2024. Policymakers have also penciled in two more quarter-percentage-rate cuts before the year's end, following months of intense pressure from the White House to lower borrowing costs.
Last week, the 30-year fixed mortgage rate dropped to 6.26% on the heels of the Fed’s rate cut, marking the lowest average since Oct. 3, according to mortgage giant Freddie Mac.
Separate data tracking daily mortgage rate movements shows them unchanged. Powell’s comments, however, did offer some support to the underlying bond market.
According to Matthew Graham of Mortgage News Daily, mortgage rates are reacting to recent market moves, resulting in a modest uptick, though overall rates have held steady since Thursday.
Rent growth slows
Inflation accelerated last month, hitting consumers' wallets as price increases picked up for goods and housing.
Data from the Bureau of Labor Statistics showed consumer prices increased 2.9% in August from a year earlier, retreating to the highest level since the start of the year. Shelter alone was the largest factor in the overall monthly CPI increase. Shelter costs rose 3.6% over the last year, underscoring how housing affordability continues to affect both renters and homeowners.
For years, economists have long expected a slowdown in rent increases, a trend that has been reflected in other private data. Since the BLS collects this data twice a year, that's created a lag in the index.
However, there’s an expectation that rental inflation will significantly decline. For the first time since President Donald Trump appointed him to the Federal Reserve Board of Governors, Stephen Miran spoke publicly on Monday at the Economic Club of New York.
In his comments, he called for lower interest rates, advocating for a federal funds rate in the mid-2% range, nearly 2 percentage points lower than the current levels. He believes that the currentpolicy is “very restrictive.”
“Housing affordability is highly influential for Americans' perception of, and experience of, the economy,” Miran said.
He forecasts that rental inflation will fall below 1.5% by 2027, a significant drop from current levels. He explained that as leases are renewed at today’s lower market rates, broader rent inflation metrics will reflect this shift. At the same time, slowing immigration trends, in turn, will lead to reduced housing demand, easing pressure on rents.
‘It's just a cheap shot’
In recent months, the Fed has weathered political pressure and a membership shakeup. Trump has launched a push to overhaul the Board of Governors by appointing an administration official and seeking to oust a member over alleged mortgage fraud.
Powell was firm when he dismissed Trump's allegations that the Fed is somehow political when making key policy decisions. He didn’t mention Trump by name, but the president has accused the Fed and Powell of not moving quickly enough to cut rates.
“Mostly people who are calling us political, it’s just a cheap shot,” Powell said. “We don’t get into back-and-forth with external people. We just do our jobs.”
The Fed chair didn’t offer any clues into what the Fed might do next; however, he stressed that there remains a lot of economic uncertainty — reasons why the central bank is taking a “risk management approach.” He warned of both inflation risks and labor market weakness, noting that there is no obstacle-free path to policy at this moment. But he didn't rule out further cuts either.
