Could the chance of a rate reduction bring buyers off the sidelines?
With additional reporting by Bryony Garlick
After keeping interest rate cuts on hold throughout the year to date, Federal Reserve chair Jerome Powell gave his strongest indication yet Friday that a reduction may be on the way soon, raising hopes for an uptick in housing market activity before the end of 2025.
The central bank head, who’s maintained for months that Fed decisionmakers need more time to judge how the Trump administration’s tariffs are impacting the US economy, left the door open to a cut during a closely watched address at the Fed’s annual retreat at Jackson Hole.
Powell said with inflation risks appearing to be contained while the labor market weakens, “the shifting balance of risks may warrant adjusting our policy stance.”
US mortgage rates don’t rise and fall in direct tandem with the Federal Reserve’s rate policy. But 10-year Treasury yields, a key indicator of where 30-year fixed rates are headed, dipped Friday after Powell’s speech as expectations of a September rate cut surged.
Possible cut offers welcome news for hopeful homebuyers
News of potential lower borrowing costs is already seeping through to clients, according to Vantage Mortgage Brokers president Andy Harris. “We’re already seeing buyers and homeowners get more active with increased applications for preapprovals and inquiries for refinancing,” he told Mortgage Professional America.
“While the Fed doesn’t cut mortgage rates directly, mortgage rates tend to follow these changes over time. The news alone [attracts] the interest of would-be homeowners or existing homeowners simply because it triggers the thought of lower costs and payments in this inflationary economy.”
The National Association of Mortgage Brokers (NAMB), meanwhile, welcomed Powell’s signal that rates could be about to fall.
“NAMB has been closely monitoring the Fed’s stance, and these remarks suggest a potential shift toward rate cuts that could bring relief to homebuyers and the US housing market,” the association’s president Jim Nabors told MPA.
Powell’s recognition that action may be needed to address a softening labor market was another positive step, according to Nabors. “[We’re] also encouraged by Chair Powell’s commitment to ‘support a strong labor market as we make further progress toward price stability,’” he said.
“This balanced approach highlights the importance of weighing both inflation control and employment stability, key drivers of housing demand and mortgage origination.”
When, and by how much, might the Fed cut rates?
While Powell’s language suggested the Fed is likely to lower rates soon, he gave no indication of a timeline for a possible cut.
Immediately after his remarks, CME’s FedWatch – a gauge of expectations for upcoming Fed announcements – indicated a 91.5% likelihood that the central bank would reduce rates at its next meeting, on September 17.
Chances had dipped slightly to 87.5% by time of writing, and Harris cautioned against assuming that rates will fall sharply and quickly. “If they do start making cuts, I certainly know it will be slow and stable, as they said,” he highlighted.
Lower mortgage rates could offer timely relief for a US housing market that has slumped since borrowing costs began spiking after the COVID-19 pandemic.
Contract closings increased by 2% last month compared with June, the National Association of Realtors (NAR) said this week – but available inventory on the market has surged over the past year, rising by 15.7% to 1.55 million units.
Existing-home sales ticked up 2% in July, reaching an annualized rate of 4.01 million, thanks to lower mortgage rates and slower price growth, according to the National Association of Realtors (NAR).https://t.co/5bjsSNG5P5
— Mortgage Professional America Magazine (@MPAMagazineUS) August 22, 2025
Keller Williams chief economist Ruben Gonzalez said further rate drops were needed to unlock the housing market for many buyers. “Unless mortgage rates move lower and stay there, the housing market will remain slow and regionally uneven, with locked-in sellers and rising inventory limiting both appreciation and the pace of home sales,” he said.
Economic uncertainty is still high, while the affordability crisis facing Americans has shown little sign of easing so far this year.
But Harris said lower mortgage rates would offer a glimmer of hope for the national housing outlook. “Inflation is still high,” he said, “but we hope to get some reprieve on interest rates, even if just a little, in the short term to spark and motivate fence-sitters in the housing market.”
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