When prices soared between June 2021 and June 2022, the Federal Reserve raised interest rates to discourage consumer spending and quell inflation. High interest rates were held steady for years while the Fed worked to bring inflation back down to 2%.
When the Fed began cutting the federal funds rate again in September 2024, economists and housing analysts expected mortgage rates to fall in tandem, but economic uncertainty, stubborn inflation, and volatile financial markets have kept rates elevated.
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The Fed announced it would not be cutting interest rates this month and will continue to monitor economic indicators ahead of the September meeting.
Though this cautious monetary policy has drawn criticism from the Trump administration, Fed Chair Jerome Powell has repeated his focus on inflation and the labor market, maintaining that the Fed doesn’t control mortgage rates directly.
Although interest rates and mortgage rates are loosely related, interest rate cuts don’t always translate into lower mortgage rates. The solution to the housing affordability crisis is nuanced, and it will likely require changes outside of the Fed’s jurisdiction.
After months of contention and calls on Powell to resign, President Trump visited the site of the new Federal Reserve Bank construction site. Though the president has strongly suggested the Fed cut interest rates to relieve the housing market, Powell has noted that more data and time are needed to assess the U.S. economy.
Image source: Chip Somodevilla/Getty Images
FHFA Director Pulte has biting words for Jerome Powell on interest rates and housing market
The Fed announced yesterday that it would hold the federal funds rate between 4.25% and 4.50%, reaffirming its commitment to suppressing inflation and ensuring economic stability. Those hoping for an interest rate cut by September may need to temper their expectations.
“There’s quite a lot of data coming in before the next meeting. Will it be dispositive? It is really hard to say,” Powell noted.
Federal Housing Finance Agency (FHFA) Director William J. Pulte has earned a repuation for being a harsh critic of Jerome Powell and the Federal reserve, calling on Powell to resign numerous times.
Pulte lamented that “It is in the strategic interest of Fannie Mae and Freddie Mac that interest rates be appropriate,” in a post on X (formerly known as Twitter) earlier this month.
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Following the announcement that the Fed would not be cutting interest rates at the July 2025 Board of Governors meeting, Pulte posted again, this time accusing Powell of lying to the public.
“Jerome Powell, again, lies to the American people. This time saying that the Fed has nothing to do with Housing. The Fed has EVERYTHING to do with Housing,” he wrote yesterday.
While the federal funds rate is indirectly tied to mortgage rates through lower costs of borrowing and investor sentiment, interest rate cuts do not always equate to lower mortgage rates. Powell’s “wait and see” approach to fully assess economic conditions is better for the long-term housing market outlook than acting too quickly and triggering an economic crisis.
The Fed’s mortgage-backed securities holdings may impact mortgage rates more than interest rates
Though mortgage rates have historically followed the movements of the federal funds rate, they began deviating from this pattern in late 2024. This divergence between mortgage rates and interest rates reflects the delicate and complicated economic conditions the U.S. is currently facing.
Mortgage rates climbed toward 7% after each successive interest rate cut last year, highlighting that the solution to the housing market improving the housing market may be more difficult and complex than previously expected.
Related: Warren Buffett’s Berkshire Hathaway predicts major housing market shift soon
In its Federal Open Market Committee statement, the Fed reiterated its commitment to curbing inflation and reinforcing the labor market while tightening its monetary policy.
“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.”
Quantitative easing, or buying mortgage-backed securities, can help stimulate the housing market during times of economic uncertainty. Selling mortgage-backed securities, however, typically puts upward pressure on mortgage rates.
The Fed’s plan to continue selling mortgage-backed securities indicates that the housing market may take a backseat to other priorities, as the Fed tries to tame inflation, keep employment levels high, and avoid an economic recession in the process.
