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Economists and investors expect Federal Reserve policymakers to continue to resist calls by the Trump administration to lower interest rates until they see more data on how tariffs and other policies are impacting inflation and employment.
Grilled by House and Senate lawmakers at separate hearings this week, Fed Chair Jerome Powell defended the central bank’s reluctance to resume cutting rates, saying the job market remains solid and that there’s no rush to make a decision.
After the Fed voted unanimously on June 18 to hold rates steady, Associated Press Reporter Chris Rugabar asked Powell if “cracks in the jobs market” and housing data “that have been pretty weak” could justify future rate cuts.
“I think if you look at the overall picture, what you’re seeing is 4.2 percent unemployment, and an economy that’s growing at a rate [that] appears to be 1-1/2, 2 percent — maybe a little better than that,” Powell said.
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While consumer sentiment has “come up off of very low levels,” it’s still depressed, Powell acknowledged.
“The housing market is a longer run problem, and also a short run problem,” Powell said. “Basically, we have a longer run shortage of housing, and we also have high [mortgage] rates right now. I think the best thing we can do for the housing market is to restore price stability in a sustainable way and create a strong labor market.”
Trump took to social media after the vote and urged the Federal Reserve Board to “override this Total and Complete Moron!” referring to Powell. “Maybe, just maybe, I’ll have to change my mind about firing him?”
Vice President J.D. Vance and Federal Housing Finance Agency Director Bill Pulte kept up the heat on Tuesday, with Vance saying he’d “love to hear an argument for why Powell cut rates 50 points right before an election but can’t do it now with inflation lower.”
Pulte claimed Powell’s interest rate policies “are not based on data but instead on Powell’s politicization of the Fed,” calling them “dangerous.”
On Wednesday — a few hours before ordering Fannie Mae and Freddie Mac to study allowing homebuyers to count crypto holdings as an asset — Pulte called on Powell to resign.
Trump told reporters Wednesday that he already has “three or four people” in mind who might replace Powell — although it’s unclear whether he will try to fire him.
Trump appointed Powell to lead the Fed during his first term, and his term is not set to end until May 2026.
One reason the Trump administration has grown impatient with Powell is that inflation has been nearing the Fed’s 2 percent goal. The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, showed the price of goods and services rose 2.1 percent in April from a year ago, the Bureau of Economic Analysis reported last month.
But while the Fed can pull levers that give it direct control over short-term interest rates, mortgage rates are determined by investor demand for mortgage-backed securities (MBS), which fund most home loans.
As the Fed cut short-term interest rates by a full percentage point in its final three meetings of 2024, mortgage rates moved by about the same amount in the opposite direction, as incoming economic data suggested inflation was on the rise again.
The last time the Fed cut rates, mortgage rates went up
Powell has been saying for months that Fed policymakers need more time to assess the impacts of the Trump administration’s policies in areas including tariffs, immigration, taxes and regulation.
The “dot-plot” in the Fed’s latest Summary of Economic Projections shows members of the Federal Open Market Committee (FOMC) expect to cut the short-term federal funds rate just twice later this year, to between 3.75 percent and 4 percent.
“Lawmakers this week have been no more successful than journalists last week in getting Chair Powell to set out a more concrete timetable for the policy easing anticipated by a slender majority of [Fed policymakers] this year,” economists at Pantheon Macroeconomics said in their latest U.S. Economic Monitor.
The CME FedWatch Tool, which tracks futures markets to predict future Fed moves, shows investors think there’s only a 25 percent chance of a July rate cut. But bets placed by futures market investors as of June 25 put the odds of a September rate cut at 90 percent — up from 64 percent on June 18.
Fed policymakers will receive “substantial extra information” if they hold off until September to make a decision, Pantheon economists Samuel Tombs and Oliver Allen wrote Wednesday.
By September, “we think the FOMC will have seen a sequence of three weak labor market reports through August,” Tombs and Allen predicted, with the unemployment rate hitting 4.5 percent by August — 4 months sooner than currently projected by the Fed.
“That would represent a resounding call to ease policy, even before the full effect of the tariffs on inflation is visible in the data,” Pantheon forecasters wrote.
In the meantime, mortgage rates have been holding steady in the high sixes.
Mortgage rates stabilize
After hitting a 2025 low of 6.48 percent on April 4, rates on 30-year fixed-rate conforming mortgages have been rangebound between 6.75 and 7 percent in May and June, according to lender data tracked by Optimal Blue.
Weekly surveys of lenders by the Mortgage Bankers Association show that demand for purchase loans was up 12 percent last week from a year ago.
“Applications increased slightly overall driven by FHA refinances, but conventional applications saw declines over the week,” MBA Deputy Chief Economist Joel Kan said, in a statement. “The average loan size for purchase applications declined to $436,300, the lowest level since January 2025, driven by decreasing conventional purchase loan sizes.”
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