'The tariffs are on hold, and so are we'
The Federal Reserve is clearly in no mood to abandon its wait-and-see approach on how the Trump administration’s tariff wave affects the US growth outlook – and the mortgage market is also stuck in a holding pattern as buyers ponder whether economic shellshock could be ahead.
The central bank kept its benchmark rate unchanged in yesterday’s announcement, citing the need to wait for further data to emerge before it can judge how severely the trade war is weighing down the economy.
And an erratic policy that’s seen steep tariffs inflicted on key trading partners before being stripped back – with notable exceptions, including massive levies on Chinese imports still in place – is filtering into homebuyer sentiment, according to Melissa Cohn (pictured top), regional vice president at William Raveis Mortgage.
“The tariffs are on hold, and so are we,” Cohn told Mortgage Professional America. “We still don’t know what the answer to the tariffs is yet. Until we know what they’re going to be and whether they’re all going to stick at the 10% [baseline] across the board, what’s going to happen with China… we haven’t seen any announcements of any specific information.”
That’s not to say buyers have abandoned the national mortgage market in droves, with plenty of regional pockets still showing signs of life and others even witnessing bidding wars.
But Powell underlined the risk to the US economy if tariffs remain in place for a protracted spell, with inflation and unemployment both expected to spike in that scenario – and odds of a Fed cut in June also appear to be receding.
George Carrillo of Hispanic Construction Council sees rate cuts as essential to reviving demand and easing pressure in a tight housing market, urging timely action from the Fed.https://t.co/FotS6nEaMD
— Mortgage Professional America Magazine (@MPAMagazineUS) May 7, 2025
What’s next for the housing market?
The housing market would also take a hit if the trade war rumbles on, according to Cohn. “I think that if the tariffs stick at a high level and interest rates remain high, we’re going to have a weaker second half of the year than we had hoped for,” she said.
“It’s quite likely that the Fed won’t cut rates again in June, whereas a couple of months ago we had all expected that the Fed was going to cut [then]… and there are some people now saying that the Fed now may not cut rates until September if they cut at all. And that’s not the rate market that the real estate market was counting on.”
That scaling-back of expectations for rate cuts will come as a familiar frustration for mortgage professionals and borrowers. In 2024, up to six moves by the Fed to bring rates lower were expected at the beginning of the year – but those expectations withered as the central bank trimmed rates just three times between September and December before tapping the brakes in January of this year.
Don’t rule out another jump in mortgage rates despite an immediate dip
Mortgage rates ticked slightly lower as Treasury yields dipped in the wake of the Fed’s announcement yesterday, although that slide could be reversed swiftly. “Bonds are doing better today, but the jobless claims [on May 8] could come out saying that there are fewer than expected, and rates could go right back up,” Cohn said.
“I think we’re basically down to data- and tariff-watching again. And Powell made it very clear: one of his comments, talking about a rate cut, was that it’s not a situation where they can be pre-emptive because they actually don’t know what the right responses to the data will be until they see more data.”
Trump continues to tout the possibility of striking multiple trade deals while commerce secretary Howard Lutnick has said an agreement with at least one country is conditionally in place. But over a month since the president rolled out his tariff wave in the White House’s Rose Garden, progress has been slow – and it remains to be seen what lies in store for the mortgage market as a result.
“When Trump brought [the tariffs] out and then put on the 90-day waiver, I think he expected to have deals much faster, and it’s taking a lot longer in order to try to negotiate,” Cohn said. “I don’t know if that’s good for us or bad for us.”
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