Interest Rate Update: Cautiously Optimistic

For the last several weeks, we’ve seen some promising shifts. The Federal Reserve recently made its first rate cut this year (the smallest amount of 0.25%). Two more cuts are expected this year, another in 2026 and one more in 2027, all of which would take the funds rate down to around 3%, which the median forecast of the committee sees as “neutral.” The 10-year treasury remained around 4.04%.

We’d love to believe our real estate market is recovering like we’ve discussed for the last couple of years. But considering how often experts’ predictions have been wrong about when we’d see rates drop back into the 5s (let alone 4s), we’re not holding our breaths. The economic factors and conditions the Federal Reserve uses to determine when it’ll start making cuts are more complex:  

INFLATION: Stubborn seems a fitting description for the trends. The Consumer Price Index (CPI) without Food and Energy has been at 3.1% for the last couple of months. This time last year, the Core CPI rate was 3.3% – barely any progress. However, Food and Energy did bump up the overall CPI to 2.9%.  The Federal Reserve wants it to reach 2% before it drops interest rates.

SPENDING: When Americans spend less, the economy slows, which triggers a rate drop. However, our GDP (Gross Domestic Product) had a big boost quarter-over-quarter (Apr-Jun 2025 = +2.6%, Jan-Mar 2025 = -0.3%). Our most recent Consumer Sentiment Report (which focuses on how we feel about our savings and wealth-building accounts) had a notable dip month-over-month 97.4% in August compared to 98.7% in July. Fewer people are optimistic about spending, and it shows. Retail sales have slowed over the months as people are being picky about how they spend their money (even fast food chains like McDonald’s have slowed in sales). The Federal Reserve wants to see a significant drop in spending before it reduces the Federal Rate.
 
JOBS: Now, THESE latest reports are major news and the main reason the Fed Rate was cut this month. With big companies’ massive layoffs and small businesses’ slower hiring, unemployment claims rose in August to 4.3%. New jobs took a shocking hit as only 22,000 were added in August (versus the 73k we saw in July and the 200k we saw this time last year). The Federal Reserve has said it’ll consider cutting rates when unemployment reaches 4.4%.

Read: Home Values Dipped. Should You Be Concerned?

TARIFFS: The higher-than-expected tariffs have impacted our economic outlook. Tariffs generate a push-and-pull between inflation and factors like spending and the job market. Tariffs have increased the prices of goods, contributing to our inflation trends. This could delay the U.S. central bank from cutting rates.

Read: Our Market is Correcting – Not Imploding

The mortgage industry didn’t wait for the Federal Reserve to announce their rate cut. Last month, we saw the 30-year Fixed bottom out at 6.26% – the lowest in almost three years! Remember, the Federal Rate does not directly shift the mortgage rate, it has a trickle-down impact on many rates, including mortgages, car loans, credit cards, and more.

THE GREAT NEWS: Lenders want to get business done. They continue to create new products and programs so many buyers can have significantly lower rates. Ask your RE/MAX Alliance agent for local, excellent mortgage broker referrals. The lack of competition among buyers means your chances of finding the right home and negotiating with sellers are better than the frenzy we experienced in 2021-2022. So don’t speculate whether you can afford to purchase based on the headlines or online calculators. Contact your RE/MAX Alliance agent and get the resources, advice, and support so you are confident if now is the time to move ahead or not. 

Sources: sifma.org, freddiemac.gov, conference-board.org, Bureau of Labor Statistics, Forbes, CNBC.com, Mortgage News Daily