The first Trump 2.0-era Fed meeting: mortgage takeaways

January 29, 2025 1:30 PM

Forecasts for policy pending from Wednesday's Federal Open Market Committee's meeting suggested the FOMC would cease cutting short-term rates for the first time since September, but some anticipated mortgage financing costs for consumers still could drop this year.

The traditionally independent committee's members were widely anticipated to pause rate cuts they've been increasingly reluctant to make despite President Donald Trump's wild-card demand that they drop financing costs "immediately."

As a result, mortgage experts were expecting the first 2025 FOMC statement and press conference under Trump would have more significance in the long run than short-term for their industry.

"Bonds may react to what [Fed Chair] Mr. Powell has to say, but there will probably be no movement until we get the PCE data on Friday," said Melissa Cohn, regional vice president at William Raveis Mortgage, referring to the next personal consumption expenditures report.

Ahead of the meeting, it was the expectations Fed Chair Jerome Powell was set to voice in the press conference that were considered to hold the most weight in shaping the future for mortgages. Many were forecasting he would leave open the possibility of future declines.

"While we may not see the same velocity of change in 2025, we should expect some slow decline in [mortgage] rates as the Fed exercises some degree of rate cuts," said Tim Lawlor, chief financial officer at Kiavi, a private lender previously known as LendingHome.

Read on to see how the meeting's outcome and its impact on mortgages shaped up on Wednesday.

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20h 35m ago

Mortgage lender reports markets are calm after Fed statements

In line with earlier forecasts, the Fed's actions left the market little changed shortly after statement release and press conference, according to Emanuel Santa-Donato, senior vice president and chief market analyst at Tomo, another nonbank mortgage company.

"Markets took the announcement in stride, with little immediate reaction — no surprises, no pivots, just a steady hand as the Fed watches for clearer signs that inflation is cooling sustainably," he said.

The upshot for now is that "'higher for longer' remains the base case" when it comes to the rate outlook, said Sam Williamson, senior economist at First American.

20h 46m ago

Some nonbank optimism on relative improvements in inflation

One nondepository mortgage executive reacting to the Fed's statements on Wednesday afternoon indicated comments about improvements in inflation relative to its earlier highs are a good sign for the rate outlook.

"Timing and depths of cuts may be uncertain, but the trend of rates down will continue despite market commentary around inflation policies as it is hard to see the post-Covid inflation repeating at this point," said Kevin Ryan, chief financial officer at Better.com.

20h 59m ago

Reactions from the bank lending sector

The Fed's decision to keep rates unchanged for the foreseeable future could have a broader impact on depositories, representatives of that sector said Wednesday afternoon.

"Borrowing costs remain high – for mortgages, home equity lines of credit, auto loans and especially credit cards – which will keep a lid on home and auto sales but also require aggressive debt repayment efforts from consumers with high-cost debt that won't be getting any cheaper," said Bankrate Chief Financial Analyst Greg McBride.

However, depository lenders also will derive some benefits from current monetary policy, according to Allen Tischler, senior vice president at Moody's Ratings.

"A slower glide path toward lower short-term rates would support banks' net interest income by helping them adjust their deposit pricing more in line with falling floating-rate loan yields," he said. "When rates fall quickly, by contrast, the cost of some deposit categories takes time to catch up, although floating-rate assets reprice immediately."

21h 19m ago

Powell distances Fed from rates that ‘hold back housing’

When asked about consumers' elevated home financing costs, Fed Chairman Jerome Powell acknowledged them but disconnected monetary policy and related sentiment from the equation.

Mortgage rates have risen, but "not principally because of expectations," he said, noting that the Fed's role is more directly related to short-term rates than long ones.

Higher mortgage rates will "probably hold back housing activity to some extent," Powell said.

On the fires and climate change, and leaving a “greening” network

Chairman Jerome Powell indicated that although the Fed recently left the Network of Central Banks and Supervisors for Greening the Financial System, it's not a reflection of either lack of concern about the impact of risk from events like the L.A. fires or political pressure.

When asked about how Trump's executive orders impact Fed policy, Powell said, "It's been our practice to align."

On when the Fed might take balance sheet actions

When asked about quantitative tightening and the path forward, Fed Chairman Jerome Powell said, "We do intend to reduce the size of our balance sheet."

But whether they do depends on factors like reserve levels, which the Fed will continue to monitor closely, he said.

"I don't have anything to say to you about particular dates," the chairman said.

Powell on immigration policy, employment implications for rates

When asked about modeling how changing immigration policy could impact the economy, Fed Chairman Jerome Powell said there are a range of scenarios from "really good" to "really bad."

"You don't act until you see much more than you've seen now," he said.

As far as employment, Powell said he doesn't think it needs to be cooled any further through actions like tighter rates, calling it consistently stable.

Both immigration and job creation have slowed, which could be contributing to a flat unemployment rate, he said.

PCE, inflation, jobs will drive Fed’s future policy

Previous actions to lower rates last year were "appropriate," but the committee currently believes it currently does not need to "be in a hurry" to adjust its policy, Fed Chairman Jerome Powell said.

PCE, inflation and jobs will be indicators it will be looking to in deciding whether to take any further actions or not, he added.

"We're not on any preset course," Powell said.

What Powell had to say about pressure from Trump to lower rates

"I'm not going to have any response or comment," Fed Chairman Jerome Powell said, when asked about President Trump's interest in seeing lower rates "immediately."

When asked about Trump's tariffs and whether they could be inflationary, he indicated that it remains to be seen.

"We're going to be watching carefully, as we always do," he said.

Mortgage Bankers Association forecasts one Fed rate cut this year

The Fed's pause and statement could mean there'll only be one short-term rate cut next year, according to Mike Frantantoni, chief economist at the Mortgage Bankers Association.

This, combined with the fact the Fed also left its policy related to allowing its holdings of mortgage-backed securities and treasuries unchanged, could mean fewer fluctuations in financing costs.

"With the Fed on hold, we do expect that longer-term rates, including mortgage rates, will also stay within a narrow range for the foreseeable future," he said.

Fed’s target leaves mortgage rates 75 bps above refi levels

Shortly after the Fed confirmed its pause, Fitch Ratings calculated that mortgage rates would have to drop around three-quarters of a percentage point for refinancing to pick up again.

"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," said Eric Orenstein, a senior director at Fitch. "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.

The mortgage rate-indicative 10-year treasury yield rose from 4.55% to levels to 4.57% following the FOMC's confirmation of its decision to hold rates firm. It had opened at levels near 4.52%.

Some anticipating Fed will freeze cuts until the second half

Just ahead of the FOMC's reveal of decisions from its meeting and the thinking behind them, there was a contingent within the mortgage market forecasting the outcome would be not only a pause this month, but through June.

The housing economy could experience "an extended period of malaise" as a result, according to David Sober, senior vice president of enterprise business development at Voxtur Analytics.

"Independent mortgage banks will continue to dominate the mortgage market due to the ability to offer more innovative ways to buy homes," he predicted. "It will be a pleasant surprise if mortgage rates dip to 6% in 2025."