A cut was never on the cards, says VP – and a reduction this year isn't a sure thing
The Federal Reserve held interest rates for the fifth straight meeting on Wednesday, citing a mostly healthy economy and lingering uncertainty on tariff effects.
The benchmark rate was held steady at between 4.25% and 4.5%. Of the 12 members of the Federal Open Market Committee (FOMC), nine members voted to hold rates, including Fed chair Jerome Powell.
Melissa Cohn (pictured top), regional vice president of William Raveis Mortgage, agreed with the decision of the central bank.
“I think it was the only choice they had,” Cohn told Mortgage Professional America. “Economic data has shown us that the economy is still moving along. The GDP number for the second quarter was much higher than expected. Employment numbers have been good, and inflation has been creeping higher. I mean, what else could the Fed do?”
Cohn said the decision to hold is in line with the Fed’s mission to make rate calls based on two primary factors.
“They have that dual mandate, to get the inflation rate down to 2% and maintain maximum employment,” Cohn said. “I think that they are right in their decision, because we still haven't seen the full impact from all of the tariffs, because many of them are just being established and defined this week, and some aren't even done yet.
“Until they know what's going to happen to the rate of inflation from the tariffs, they're hard-pressed to do anything other than just sit and wait and see what's going to happen. And the last thing in the world they want to do is cut rates and only to have to raise them again.”
Dissent expected
While the overall FOMC decision to hold was expected, so was the dissent. Two governors, Michelle W. Bowman and Christopher J. Waller, voted no, wanting a 25-basis-point rate cut. Another governor was not in attendance and did not vote. It was the first time since 1993 that there were two dissents to a Fed decision.
Both Bowman and Waller have been open in recent weeks, believing the Fed should cut right away. Waller is one of the people who experts believe could be in line to replace Powell when his term ends in May 2026.
Cohn said neither the Fed decision nor the dissent had much effect on the markets, and pointed to Thursday’s Personal Consumption Expenditures (PCE) data as potentially having more of an impact.
“There were no surprises,” Cohn said. “They're both nominated by Trump. They were clear about their desire to cut rates prior to the meeting, so their dissent was expected. It didn't move the market at all. In fact, bond yields are a little bit higher. Stocks were a little bit lower, but no drastic reaction from the markets today was a good thing.
“Now we go back to data watching, and tomorrow we get the PCE report that could be a much bigger market mover than what happened with the Fed today.”
No cuts until 2026?
The decision to hold will likely bring additional criticism from the Trump administration, which has been calling for the Fed to slash rates.
Cohn said it is important to remember that the actions of the Federal Reserve don’t necessarily correlate with the movement of mortgage rates.
“One thing we have to remember is that the Fed does not drive mortgage rates,” she said. “While the Fed does look at the same data, mortgage rates are tied more closely to the 10-year bond yields. And the 10-year bond yields will be a lot more data reactionary. The Fed looks at a trend. They take a much longer-term approach to analyzing the data.
“The bond market takes a more immediate approach to analyzing the data, and we could see that (Thursday). If we see the PCE index, and the rate of inflation is not out of control, the bond market could rally, and mortgages could drop an eighth of a percent.”
The Federal Reserve is widely expected to hold interest rates steady at its July FOMC meeting, despite external pressure. However, a rate cut might not automatically translate to lower mortgage rates, warns Sam Williamson, First American.https://t.co/GCoC0eg313
— Mortgage Professional America Magazine (@MPAMagazineUS) July 29, 2025
As Powell said in his press conference Wednesday afternoon, the Fed will keep a close eye on tariff impacts on inflation in the lead-up to the FOMC’s September meeting. Cohn isn’t sure they’ll have enough data even by then to cut.
Those thoughts are in line with CME FedWatch, which dropped the chance of a September cut to just 45.7%. There is an 11.2% chance that there are no rate cuts the rest of the year.
“They're more concerned with the rate of inflation, and we don't know if there will just be a one-shot bounce from the tariffs, or if it will be an ongoing increase to the rate of inflation,” Cohn said. “Until we have that answer, the Fed can't make a decision on what they're going to do, and they're not going to get that answer in September.
“I think it's quite possible that if the rate of inflation continues to creep higher and doesn't start to settle back down, that the Fed will continue to be in a holding pattern. Then we may not see a rate cut until the end of the year, or possibly not until 2026. It's not what anyone wants to hear, but it's the reality.”
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