While there's hope for lower rates for the rest of 2025, economic and political turmoil could change the outlook
Just as tariff uncertainty caused the Federal Reserve to hold rates for most of 2025, an unexpected softening in the jobs market led the central bank to cut rates by 25 basis points on Wednesday.
The softening jobs market impacted the bond market, which led to a steady decline in mortgage rates. Whether that decline continues is anybody’s guess, but those rate declines occurred between the Fed’s previous announcement and Wednesday’s rate cut.
Melissa Cohn (pictured top), regional vice president of William Raveis Mortgage, said the news has been better over the last month or so since rates began to slide.
“It's definitely busier,” Cohn told Mortgage Professional America. “It certainly piqued interest in the number of people who are considering refinancing or getting back into the purchase market. People read these headlines that mortgage rates are at the lowest level they've been in two years, and they expect me to tell them that the rate is 4% but that's just not where we are.
“We're in a much different rate environment. If you can hold out, I think that if the jobs numbers remain where they are, there's a very good chance we'll see lower rates through the end of the year. But you know, there's always a monkey wrench somewhere. No one expected tariffs to come into play and impact the markets as much as they did.”
Too much noise
While there was some optimism that rates could continue to decline, Cohn notes that all it would take would be for something unexpected to happen before the next Fed meeting to change the forecast again.
“What about the budget?” she said. “What happens if the government shuts down? It is impossible today to predict anything. Not that it was possible ever, but I think more than ever in a very long time, there's too much noise in the world to be able to say with confidence that rates will go one way or the other for more than the next day. Bond yields are higher now after the Fed press conference.”
As of late afternoon Wednesday, the 10-year treasury bond, one of the leading indicators of mortgage rates, was up five basis points. It’s another reminder that the Fed cutting rates doesn’t mean that mortgage rates will drop.
“I keep telling people the Fed cutting rates doesn't mean that mortgage rates will go down,” Cohn said. “Mortgage rates move on economic data, and the bond market is now saying, ‘Ho hum, basically.’ I think they really didn't like his ‘risk management’ comment. That showed a more cautious approach, and that the door is not wide open for many more cuts. Certainly not a bigger cut than a quarter-point cut.”
After months of holding steady even in the face of intense political pressure from the Trump administration, a weakening jobs market was finally the fuel needed to drive the Federal Reserve to cut.https://t.co/ugx4JBsPYB
— Mortgage Professional America Magazine (@MPAMagazineUS) September 17, 2025
As Powell indicated in his press conference after the rate decision, the central bank finds itself in a challenging spot with its two primary mandates moving in opposite directions. For most of the year, the central bank leaned more heavily on keeping inflation in check, so it held rates steady. Now, Powell indicated that the balance has swung back toward the job market, which led to a move that Cohn agreed with.
“The Fed has always been very conservative,” Cohn said. “Their job is to do what's best for the American people, and not what one person, perhaps the president, may say. Everyone wants lower rates. Everyone wants more affordability. No one can afford for the rate of inflation to skyrocket. No one can really afford for us to go into a period of stagflation, so I think the Fed was prudent in what they did today and what they've said.”
What to expect from the Fed
Cohn thinks, barring something unforeseen, that we will see additional cuts from the Federal Reserve. However, there might not be as many cuts as some people may be forecasting.
"I think that we're not done with cuts, but I think that the expectation that there will be multiple cuts this year and multiple cuts next year is off the table," Cohn said. "I think that they're still very much concerned about the inflationary impact of these tariffs, and that we really have not yet begun to see the real impact, as many companies have been absorbing the cost of the tariffs.
As for some of those unforeseen factors, Cohn cites the possibility of Trump receiving the green light from the Supreme Court to fire Lisa Cook, the addition of Stephen Miran to the board, and the potential politicization of the Bureau of Labor Statistics (BLS) as things that could throw a monkey wrench into predictions.
“There are a lot of things that are going on in the world, and especially in our country, where there's fear of credibility with the Fed, with a lack of independence, depending on how many Fed members Trump can put on as a Fed member,” she said. “There is concern about the veracity of data from the firing of the head of the BLS. Will the data that we see in months to come be more politically influenced?
"What Powell did say is he thought by the end of 2027 that the Fed funds rate would be down to 3.31%, which is almost a full point lower than where we are today. That's good news, but that can change in a month. We've seen the data change. We've seen the Fed's perspective change."
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