HousingWire
Fed Chair Jerome Powell said he’s had ‘no contact’ with President Trump about lowering interest rates
The Federal Reserve on Wednesday paused its recent string of interest rate cuts, holding benchmark rates steady at a range of 4.25% to 4.5%. The move was widely expected considering recent employment and inflation data showing that the U.S. economy continues to run hot.
Market analysts were nearly unanimous heading into the day that the Fed would pause its rate-cutting cycle that began in September when it lowered the policy range by 50 basis points (bps). The cuts continued with a pair of 25-bps decreases in November and December.
“The Fed’s pause on rate cuts confirms what Treasury yields have been telling us — inflation risks are likely to keep mortgage rates high in the near term,“ Eric Orenstein, senior director at Fitch Ratings, told HousingWire in a written statement. “Mortgage refis could still pick up if long-term rates fall around 75 bps, but there is clearly less momentum than there was even three months ago.”
David Sober, senior vice president of enterprise business development at Voxtur Analytics, said that “the Fed’s decision to keep rates untouched is likely a long-term trend, with interest rate reduction not expected until the second half of the year. This keeps the housing economy in an extended period of malaise, with affordability at its lowest point in memory.
“Independent mortgage banks will continue to dominate the mortgage market due to the ability to offer more innovative ways to buy homes. It will be a pleasant surprise if mortgage rates dip to 6% in 2025,” Sober added.
During his customary post-meeting press conference, Fed Chair Jerome Powell discussed some of the factors that go into the central bank’s forecasting and decision-making processes. Specifically related to the new Trump administration, Powell said officials are focused on potential tariffs as well as immigration, fiscal and regulatory policies.
“I think we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be,“ Powell told reporters. “And as we always say, this is no different than any other set of policy changes at the beginning of an administration. We’ll patiently watch and kind of not be in a hurry to get to a place of understanding what our policy response should be until we see how it plays out.”
Melissa Cohn, regional vice president at William Raveis Mortgage, said in written commentary on Wednesday that market observers should keep their eyes on the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index.
Data for December will be released Friday, and the annualized growth for the PCE index has floated between 2.1% and 2.4% since August, slightly above the Fed’s target inflation goal of 2%. This data could provide a better road map of where rates are headed before the Fed’s next meeting in mid-March.
Cohn also said that Fed policymakers have remained an “independent body and will not just lower rates if asked,” a direct reference to calls from President Donald Trump to lower the federal funds rate and spur economic growth — including more home sales.
“Mortgage rates will move with inflation and employment data, as always, even with all the uncertainty behind President Trump’s implementation of his new policies and the impact on inflation and the economy. … There are a lot of unknowns at the moment,” Cohn said.
“President Trump is working fast to implement many of his desired policies and campaign promises. So far, there has been little, if any, impact. It will take time to see how everything plays out in Washington and how the new policies impact inflation and the economy.”
Powell said he’d had “no contact” with Trump when asked by a reporter on Wednesday if there have been direct communications on this issue.
“I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so,” Powell added. “The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals, and really keeping our heads down and doing our work. And that’s how we best serve the public.”
Even as the Fed funds rate has been lowered by a total of 100 bps since September, mortgage rates have gone in the opposite direction. Since Sept. 18, when the Federal Open Market Committee (FOMC) announced its first rate cut since March 2020, the 30-year conforming loan average has shot up from 6.31% to 7.12% as of Wednesday.
Mortgage rates tend to more closely follow the direction of Treasury yields. HousingWire Lead Analyst Logan Mohtashami noted that the spread between the 10-year Treasury and the 30-year mortgage rate has narrowed significantly since peaking in June 2023.
“The U.S. housing market would have been much worse without better spreads in 2024 and now going into 2025,” Mohtashami wrote on Saturday. “If we applied the worst spread levels from 2023 to today’s rates, we would see an increase of an additional 0.79% in the mortgage rate — getting near 8%. On the other hand, if mortgage spreads were at their typical levels, we could expect mortgage rates to be approximately 0.74% to 0.84% lower than they are now, which means mortgage rates near 6%.”
Although Trump might not have much direct influence over mortgage rates, his newly confirmed Treasury Secretary, Scott Bessent, could. Bessent has suggested that Fannie Mae and Freddie Mac could use some of their earnings to buy mortgage-backed securities, which would narrow the spreads and potentially create lower mortgage rates to spur more home purchases and refinances.
“This scenario is more likely than President Trump requesting funding from Congress to lower mortgage rates,” Mohtashami added.
In response to a reporter’s question about the potential impact of mass deportations on the labor market and inflation, Powell said Wednesday that the Fed staff does a lot of modeling to determine “a range of possible outcomes” ties to various policy moves.
“You can look at the 5-year-old Tealbooks and see their alternative simulations,” Powell said. “There will be a baseline, and then they’ll show six or seven alternative scenarios, including really good ones and not so good ones.
“And what those do is they spark the policymakers to sort of think and understand about the uncertainties that surround us. … We’re all well aware that the range of possibilities is always broad — not just now but always.”
CoreLogic chief economist Selma Hepp noted that the pause on rate cuts should continue to benefit the market for new homes, which has been performing better than existing homes for a while.
“The nation’s economy continues to be resilient against long-term economic setbacks, which means that the Fed is in no imminent need to continue its rate cuts,“ Hepp said in a statement. “With mortgage rates expected to remain higher for longer and with limited inventory, existing home sales activity keeps reaching new lows. In contrast, home builders have added more new homes last year and continue to offer rate buydowns on new construction, keeping those sales strong.”