Mortgage Forecast This Week: Fed Holds Rates Steady Amid Economic Uncertainty

The Federal Reserve held interest rates steady at its monetary policy meeting this week — though sticky inflation, increased unemployment and slowing economic growth could force the central bank to cut rates in late spring or early summer.

As recession fears mount and uncertain trade policies pressure financial markets, the key question for investors was how the Trump administration’s economic austerity measures and tariffs would influence the Fed’s interest rate forecast.

“Policy is not on a preset course,” Fed chair Jerome Powell said during Wednesday’s press conference. “We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity.”

The Fed is tasked with maintaining maximum employment and containing inflation. A sluggish economy typically warrants interest rate cuts to stimulate growth, but lowering rates too quickly could fuel price growth when inflation is still above target.

Still, the Federal Reserve, which sets a short-term benchmark interest rate for lenders, only indirectly impacts the mortgage market. In 2024, the central bank cut interest rates three times, but mortgage rates didn’t fall.

That’s because rates are primarily driven by movement in the bond market, specifically on the 10-year Treasury yield. Bond yields and interest rates rise or fall depending on how new economic data shifts market speculation and risk assessment. Until the impact of the administration’s policies is clearer, mortgage rates will continue to fluctuate.

Read more: How the Federal Reserve’s Decision Impacts Mortgage Rates

What’s the path for mortgage rates now?

Fannie Mae projects mortgage rates to stay above 6.5% for the better part of the year. Yet lenders base their rates on a range of factors, and no forecast is set in stone. Given the precarious nature of the economy, any sign of risk or disruption could lower bond yields and impact the trajectory of mortgage rates.

If an economic downturn appears likely, for example, mortgage rates could start decreasing, but they would need to drop closer to 5.5% to bring buyers into the market at scale, according to Alex Thomassenior research analyst at John Burns Research and Consulting.

While cheaper home loan rates are positive for housing affordability, a shaky economy could keep the housing market frozen. “If lower mortgage rates are the result of a recession, housing demand could remain muted,” said Thomas.

Prospective homebuyers who have been waiting for mortgage rates to drop for the past few years may need to adjust to the “new normal” in the mortgage market, with rates fluctuating between 5% and 7% over the longer term. That may seem high compared to the recent 2% rates of the pandemic era. But experts say getting below 3% on a mortgage is unlikely without a severe economic downturn. Since the 1970s, the average rate for a 30-year fixed mortgage has been around 7%.

Today’s unaffordable housing market isn’t just a result of high mortgage rates. A long-standing housing shortageexpensive home prices and a loss of purchasing power due to inflation have locked out buyers over the last several years.

Tips for today’s homebuyers

With the spring homebuying season fast approaching, prospective homebuyers are left wondering whether to enter the market or continue waiting on the sidelines. It’s never a good idea to rush into buying a home without establishing a clear budget.

Here’s what experts recommend before purchasing a home:

💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and at what interest rate. A credit score of 740 or higher will help you qualify for a lower rate.

💰 Save for a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.

💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.

💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage pointswith each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.

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