Senior economist gives his verdict on when financial market watchers can expect rates to fall
The Federal Reserve is set to hold its July meeting of the Federal Open Market Committee (FOMC) this week. On Wednesday, the Fed is likely to announce a continued hold in interest rates, despite intense pressure from the Trump administration to slash rates.
While all signs point to the Fed holding rates steady for the fifth consecutive meeting, the question mortgage brokers want to know is whether a cut by the Federal Reserve would actually lower mortgage rates.
Sam Williamson (pictured top), senior economist at First American, said while a rate cut could help mortgage rates fall, it is not the only factor at play.
“Fed decisions matter, but they’re not the only force shaping market rates,” Williamson told Mortgage Professional America. “While rate cuts often lead to lower yields, that relationship depends on how markets interpret the broader economic picture. After the last cut, for instance, longer-term rates jumped as investors priced in inflationary risks from a resilient economy and greater policy uncertainty around tariffs and immigration.”
Williamson said that additional economic factors would need to change for a rate decline or a Fed cut to be effective. The markets will keep a close eye on inflation and overall economic health, in addition to the central bank's rate.
“If the Fed cuts again, rates may still rise—or remain unchanged—if markets expect inflation risks to persist,” he said. “For longer-term rates to fall meaningfully, markets would need clear signs of disinflationary pressures or more signs of economic deterioration. Without these factors, cuts alone may not move markets.”
Starting to see dissent
Maybe more interesting than this month’s rate decision is whether there will be official dissents to the decision of the central bank. Governors who file formal dissents would join the chorus of critics who believe the Fed should look at a rate cut. These dissents could pave the way for a potential September cut.
“The Fed is widely expected to hold rates at 4.25–4.50% at the July FOMC meeting, as policymakers monitor the economic impact of shifting trade dynamics and the broader inflationary environment,” Williamson said. “Still, the decision may face some internal debate, as recent remarks from a few members of the Fed Board of Governors suggest growing support for a more dovish stance amid signs of cooling economic momentum.
“Private-sector hiring continues to soften, but with no signs of sharp deterioration, the Fed seems likely to maintain its ‘wait-and-see’ approach for the time being.”
CME FedWatch, which uses the 30-day Fed Funds rate to predict future action by the central bank, puts the chance of a rate cut this week at just 2.1%. However, the odds of a 25-basis-point cut in September are 62.4%, with a 1.6% chance of a 50-basis-point rate cut.
Williamson said if the central bank has a firm idea on the effect of new tariffs and their impact on the economy, it could be in line to resume rate cuts at its next meeting.
“A September cut remains a real possibility if the Fed holds rates steady in July. By that point, officials should have a clearer view of how tariffs are influencing inflation, which will be critical in shaping the policy path. Markets are currently pricing in around a 60% chance of a September cut and a 65% chance of two cuts by year-end.
“However, with inflation reaccelerating in June, the Fed is likely to remain cautious in the near term and will want to see a sustained improvement in inflation trends before moving forward with rate cuts.”
Suffering from success
Another question brokers have been asking is why the US central bank hasn’t followed other banks around the world, which have been more aggressive in rate cuts.
Williamson believes the difference in strategies is a sign of the overall health of the American economy compared to other countries.
Speculation about Federal Reserve Chair Jerome Powell's potential departure is sparking anticipation among mortgage professionals for a significant interest rate reduction.https://t.co/RZwKvvlzDy
— Mortgage Professional America Magazine (@MPAMagazineUS) July 24, 2025
“The Fed’s more cautious approach to rate cuts stands in contrast to the more aggressive easing seen from other central banks, but that divergence reflects the unique position of the US economy,” he said. “While many advanced economies are contending with weak growth and external shocks, the US has been buoyed by strong domestic demand, healthy consumer spending, and a resilient labor market.
“In many ways, the US is a victim of its own success. Its economic resilience has left the Fed with less urgency to ease policy.”
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