Could a new flurry of tariffs on August 1 see prices spike?
News of a trade deal between the US and Japan soothed financial markets and saw Treasuries slide lower, but market watchers are still on edge after President Trump doubled down on plans to launch sweeping reciprocal tariffs on trading partners.
Speaking at an AI summit in Washington, DC, Trump suggested reciprocal tariffs, scheduled to come into effect on August 1, could rise as high as 50%. "We'll have a straight, simple tariff of anywhere between 15% and 50%," he said, citing strained relations with certain countries.
The announcement marked a significant shift from earlier proposals that suggested rates would remain near 10% to 15%. Countries seen as “difficult” by the administration are expected to face the highest rates.
Mortgage market reacts to inflation concerns
A potential new escalation in the trade war could impact the inflation outlook, with ripple effects likely to reach the US housing and mortgage markets. According to J.P. Morgan Global Research, tariffs announced in recent weeks could increase Personal Consumption Expenditures (PCE) by as much as 1% to 1.5% this year. This inflationary pressure is poised to delay potential interest rate cuts by the Federal Reserve.
“Given imperfect pass-through and margin compression, a more likely estimate is 0.2 to 0.3 percentage points,” said Michael Feroli, chief US economist at J.P. Morgan. “We think this bolsters the case for the Fed to take a very cautious approach to rate cuts.”
As the Fed holds its stance to anchor long-term inflation, the prospect of lower mortgage rates in the near term appears increasingly unlikely. This policy direction may keep borrowing costs elevated, further cooling homebuyer activity and refinancing demand already dampened by economic uncertainty.
Trade tensions spread globally
While the US and European Union are reportedly nearing a trade deal, Trump has announced plans for a 30% tariff on EU goods shipped to the US, arguing that a trade deficit poses a potential threat. A deal with Japan is set at a 25% tariff level, while the Philippines and Indonesia accepted 19% tariffs in exchange for exemptions on US exports.
Trump warned of pending letters to over 150 smaller US trade partners outlining new baseline rates, with Treasury secretary Scott Bessent anticipating more agreements in the coming days.
Fed expected to stay on hold
With tariffs likely to add to inflation pressures, the Fed is expected to keep rates unchanged until at least September, as noted in previous Federal Reserve statements. JP Morgan analysts believe that unless labor markets deteriorate significantly, the Fed will not ease monetary policy.
“The worsening growth and inflation outcomes leave the Fed with a challenging dilemma,” Feroli noted.
For now, elevated tariffs may keep the door closed on near-term mortgage relief.
How do you think rising tariffs will impact mortgage rates and home affordability in the US? Share your insights in the comments below.
