Fed Meeting Recap
Policy Decision
The Fed held the federal funds rate steady, in line with expectations, and released its latest Summary of Economic Projections including the new Dot Plot.
Rates Outlook
The median projection still foresees two rate cuts in 2025. However, the tone shifted: seven members now anticipate zero cuts, up from four in the prior meeting.
Economic Forecast Revisions
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GDP growth was downgraded to 1.4%, from a previous 1.7%.
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Unemployment is now projected to rise to 4.5%, compared to 4.4% before.
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Core PCE inflation—the Fed’s preferred measure—was raised to 3.1%, up from 2.8%, signaling elevated inflation concerns.
Fed Chair Powell’s View
Powell cited rising tariff-related pressures as a key driver of the inflation forecast and reaffirmed the Fed’s forward-looking approach—citing the swift pandemic-era response—but did not address past delays in responding to rising inflation.
Governor Waller’s Take
In contrast, Governor Christopher Waller has called for a rate cut as soon as July. He argues tariffs’ inflationary impact will be short-lived, as only 10% of price pressures stem from imports and some costs are shared by businesses. With the labor market showing signs of weakening and policy already restrictive, he believes an early cut is justified—contingent on data—highlighting his potential as a future Fed Chair.
Labor Market Signals
Unemployment Trends
Initial and continuing claims have remained elevated for four consecutive weeks, hinting at labor market softening.
Late WARN Notices
The number of WARN notices hit nearly 46,000 in May, marking the highest level since the Great Recession/COVID era. If these notices materialize into actual layoffs, jobless claims could continue rising.
Tourism Headwinds
International visits to the U.S. dropped roughly 14% in March 2025 compared to last year. A sustained decline could translate to a $21 billion hit to tourism exports, which disproportionately affects the Leisure and Hospitality sector—a key source of recent job gains.
What This Means for Mortgage Rates
Interest Rate Outlook
The Fed’s more cautious inflation stance—particularly regarding tariffs and labor market weakness—may delay rate cuts. But Waller’s views suggest a potential cut as soon as July, contingent on data.
Bond Market Dynamics
Treasury demand remains solid—evidenced by successful recent 10- and 30-year auctions—supporting long-term rates even as global investors cautiously monitor economic and geopolitical risks.
Consumer Strategy
Overall, mortgage rates may remain relatively stable in the near term. If data weakens and the Fed pivots, we could see modestly lower rates later this summer into early fall, creating refinancing opportunities.