Interest Rate Update: A New Phase

With the national and global unrest impacting our economy, the first half of 2025 hasn’t gone as real estate experts expected. We know interest rates are among the most critical factors buyers, sellers, and investors must consider as they make moves (or sit on the sidelines). So we at RE/MAX Alliance keep close watch of the Federal Reserve’s Fed rate and the economic conditions the committee utilizes to make rate adjustments.

Who is the Federal Reserve? Read here.

The Fed wants to drop and stabilize interest rates once our economy slows down. This month, committee chair Jerome Powell had new updates about future rate cuts. They are walking a fine line between the president’s uncertain tariffs and our current economy’s resiliency:

Job Market

Continuing to make slight shifts, the latest Jobs Report shows the unemployment rate bumped up to 4.2% in April.  The Federal Reserve wants unemployment to hit 4.4%. New jobs surprised us. According to the Bureau of Labor Statistics (BLS), employment in April increased by 177,000, which is almost 40k more than expected.

Consumer Spending 

In anticipation of tariffs, Americans jumped on large ticket item purchases (appliances, furniture, electronics). So we saw a surge in spending. The Federal Reserve wants to see a significant drop in spending (mainly in areas like retail and housing). We are likely heading that direction as Consumer Confidence declined for the fifth month in a row, April stats are at levels not seen since the COVID pandemic. The first quarter of 2025’s GDP (Gross Domestic Product) only declined by -0.3%. Q4 of 2024 had grown by +2.4%.

Inflation 

2.2% is the Federal Reserve’s goal. However, the latest Core CPI (Consumer Price Index that excludes food and energy) at 2.8%, a decrease from the previous month’s 3.1% It is actually the lowest level we have seen since March of 2021. If the trend continues, it could help with rates.

Tariffs

However, the president’s negotiations with key trade partners will have a significant impact on rates, as Powell explained. The higher-than-expected tariffs surprised the Federal Reserve, which is concerned about the impact it will have on our material and economic outlook. Powell warned if Trump’s tariffs ultimately stay at their current levels, it could delay the U.S. central bank from achieving its goals to cut rates for the next year: 

“What looks likely, given the scope and scale of the tariffs, is that we will certainly see the risks to higher inflation, higher unemployment have increased. And if that’s what we do see — if the tariffs are ultimately put in place at those levels, which we don’t know — then we won’t see further progress toward our goals,” he said. “We might see a delay in that.” 

So could rates drop this year? It is a big MAYBE. 

The Fed’s inability to achieve their goals could hold rates at higher levels for longer than experts had previously anticipated. The president’s call for the Federal Reserve to lower interest rates has received this response from Jerome Powell:

“We are always going to do the same thing, which is we are going to use our tools to foster maximum employment and price stability for the benefit of the American people,” he said. “We are always going to consider only the economic data, the outlook, the balance of risks and that’s it. That’s all we are going to consider.”

Powell said “There’s just so much that we don’t know, I think, and we’re in a good position to wait and see, is the thing. We don’t have to be in a hurry. The economy has been resilient. It’s doing fairly well. Our policy is well-positioned. The costs of waiting to see further are fairly low,” Powell said. “I can’t tell you how long it will take, but for now, it does seem like it’s a fairly clear decision for us to wait and see and watch.”

But there are silver linings!

• The Federal Reserve Committee does not plan to increase the rate! This is welcome news.

• With interest rates only making small fluctuations, that stability gives homebuyers confidence that their strategy will succeed in this market.

• Buyers have adapted to interest rates hovering in the 7s. Our spring market along the Front Range picked up steam, and many communities had more homes for sale than in the last ten years.

Read: Is Our Market STILL Correcting Itself?

You can still find success in 2025. Buyers, if you can afford a monthly mortgage payment, make a move soon. With markets slowing down for the summer, you have more negotiating power now than over the last few years. Your RE/MAX Alliance Agent will empower you with local market data and strategies to reduce your purchasing costs.

Sellers, using traditional tactics (home improvements, staging, excellent marketing), can improve your return. Summer is the optimal time to prepare your home for the fall market. Talk with your RE/MAX Alliance agent as soon as possible to start preparations. 

Sources: federalreserve.gov, freddiemac.com, mortgagenewsdaily.com, Nicole Rueth with the Rueth Team