Leading economist believes Federal Reserve is keeping wait-and-see approach to rate cuts
Despite continued calls from both the Trump Administration and economists for the Federal Reserve to cut rates, no change is expected when the Federal Open Market Committee (FOMC) meets on Wednesday and announces its rate decision.
Calls for a rate cut have gotten louder from the administration recently. Vice President JD Vance criticized Jerome Powell last week, followed by President Donald Trump, who added his own criticism and called for a rate reduction.
Some national economists, like Lawrence Yun of the National Association of Realtors (NAR), told Mortgage Professional America that he felt the Fed was lagging behind by keeping rates elevated.
However, Odeta Kushi (pictured top), deputy chief economist at First American, can see where the Fed is coming from with its likely decision to hold rates steady on Wednesday.
“The Federal Reserve is widely expected to hold rates steady at (this) week’s meeting,” Kushi told Mortgage Professional America. “Markets have priced in a ‘wait-and-see’ approach, and the Fed seems inclined to delay any cuts until they have greater clarity on how tariffs and broader economic trends are evolving, likely not before September.”
Inflation progress not enough for Fed
Kushi believes that the FOMC will continue to stress that its economic indicators, while improving from earlier this year, still aren’t in range to the point where the Fed feels comfortable with a rate cut.
“The Fed will almost certainly emphasize its data-dependent stance,” Kushi said. “Inflation has cooled considerably, and there are reasons to believe that it could continue to cool. Notably, shelter inflation is likely to ease further, as it tends to lag behind market-based rent trends, and in the labor market, a lower quits rate suggests wage growth is slowing.
“But the progress on inflation isn’t enough for the Fed to feel confident that inflation risks are behind us, especially with new tariffs introducing potential upside pressure. And, while the labor market has shown some cracks, its resilience gives the Fed time to ‘wait and see.’”
Uncertainty about tariffs seems to be one of the Fed's concerns. At one point this year, betting markets were counting on as many as five rate cuts. However, after the “Liberation Day” tariffs were introduced, the number of rate cuts forecasted plummeted. Betting odds still favor two more rate cuts this year, with the next cut forecasted for September.
“I think we’re on track for cuts later in the year, possibly beginning in September,” she said. “The Fed will want to see sustained progress on inflation, more signs of softening in the labor market, and a clearer picture of the impact of tariffs. Until then, patience is the play.”
Leading economists split on opinions
Yun believed that the Fed might need to make a large number of rate cuts over the next 12 months to return rates to normal.
“Right now, the Fed funds rate is, by historical standards, very elevated,” Yun said. “To just get to the historical average, one is looking at possibly six rounds of rate cuts over the next, say, 12 months.”
President Donald Trump affirmed he won't dismiss Federal Reserve chair Jerome Powell, but intensified criticism of the Fed's slow rate cuts, calling him "Too Late."https://t.co/qptbK7cvVg
— Mortgage Professional America Magazine (@MPAMagazineUS) June 12, 2025
However, Kushi can see the rationale behind the Federal Reserve’s cautious approach due to economic uncertainty.
“From the Fed’s perspective, the bar for easing is deliberately high,” Kushi said. “They’re trying to avoid reigniting inflation by prematurely cutting rates. This ‘wait-and-see’ approach reflects the complexity of today’s crosscurrents: tariff uncertainty, a still-resilient labor market, and inflation that’s moving in the right direction, but not quite there yet.
“Uncertainty is one of the biggest drags on the economy. Whether it’s policy, inflation, or global trade, uncertainty leads to hesitation. That’s true for consumers, businesses, and housing alike. Greater clarity may be the key to unlocking momentum.”
Kushi is optimistic that if the Fed can make rate cuts in the second half of 2025, those cuts will cause a decline in mortgage rates, which could begin to boost the home market in the fall.
“If the Fed does begin cutting rates later this year, we could see mortgage rates drift a bit lower,” she said. “That would provide some relief and help thaw parts of the housing market. But, even without significantly lower rates, we’ve seen a slowdown in home price growth nationally, which is giving household incomes a chance to catch up. That trend will help to improve affordability in a slow, but still important way.”
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