I am asked all the time where I think rates will be in six months. My answer, after I say that I can’t even predict where I’m going to have lunch tomorrow, is always the same, “Higher, or lower, or possibly the same.” Or sure, one can have a prediction until a ship becomes stuck in the Suez Canal, or a pandemic occurs.
The interest rate markets have a way of humbling almost all the ‘experts’ and the very first thing you learn in Secondary Marketing is that you shouldn’t take a view on where rates are headed because half the time, you’re wrong anyway. In the first half of last year the arm-chair prognosticators were predicting that we’d see rates come down by the end of 2024, however, that simply was not the case as many LOs are originating in the high 6% or even 7% range currently.
Starting in September 2024, the Fed implemented a series of rate cuts, lowering the federal funds rate to 4.25%–4.50% by December 2024. As of March 2025, the Fed has held rates steady at this level, with officials indicating a cautious approach due to ongoing inflation concerns and economic uncertainties. I continue to read, however, inside the world of mortgage banking, opinions expressed that rates will not only come down, but when to expect this to happen. Based upon what data, I ask? Are their views speculative, biased, or just hopeful?
I would challenge these prognosticators as to ‘why’ mortgage rates are positioned to fall. What leads them to predict that? The economy may slow with tariffs, but consumer goods will also be more expensive. I’m sure some opinions are based on fundamentals: Fed raises rates to control inflation, money is taken out of the economy, the economy cools, Fed cuts rates, and mortgages come down to some predicted level. A lot of the predictions I see are not rooted in actuality, but rather rooted in exuberance for mortgage banking.
Here’s some additional perspective. None of the macro data even hints at a reduction of short-term interest rates. Current inflation is around 3% with the Federal Reserve’s target set at 2% Economists have modeled that unemployment would need to reach as high as 7% in order for inflation to come down to 2%; however, the unemployment rate refuses to tick up much. Remember, when an economy ‘slows’ jobs are not created, historically they’re lost.
Everything points to the Fed being hawkish in its monetary policy for the remainder of the year. Anyone predicting where interest rates will be in the future would need to start by predicting where the Federal Funds rate NEEDS to be in order to see inflation that’s appealing to the Fed, and then ultimately, HOW LONG rates needs to remain there; when is it warranted to reduce borrowing rates under recessionary fears? These are two almost impossible questions to answer since the number of variables that you need to get right, coupled with unpredictable world events, play such a strong role in forecasting interest rates.
Like I said before, a year from now, rates will either be higher, lower or the same. So let’s discuss your products and services!