Markets continue to anticipate at least one Federal Reserve rate cut by year-end, though a move at the July meeting now seems wholly unlikely. With the new round of tariffs postponed until August 1, investors are adopting a wait-and-see approach, cautiously monitoring trade headlines without making major shifts in positioning. The Fed, for its part, maintains that the labor market remains tight, inflation is still above target, and tariff-driven uncertainty could shape the policy path going forward. These factors, along with a firm equity market and steady(ing) Treasury yields, suggest a central bank that isn't in hurry to act but is open to easing later in the year.
Labor market data showed initial jobless claims falling to 227k for the week of July 5 (businesses have been slow to let employees go, and it has become more difficult to find a job after losing one), marking the fourth straight weekly decline and pushing the four-week average lower. Although continuing claims ticked up slightly to 1.965 million, they were in line with expectations. The stronger-than-expected employment backdrop has nudged Treasury yields, and mortgage rates, higher. Mortgage rates rose for the first time in six weeks, with Freddie Mac reporting the 30-year fixed rate at 6.72 percent and the 15-year at 5.86 percent, notably still below year-ago levels.
Thursday’s $22 billion 30-year bond auction helped ease concerns about weak demand for long-term debt. Despite fiscal concerns, rising issuance, and the trade backdrop, investor demand (particularly from non-primary dealers) was solid, with nearly 90 percent of the bonds purchased by non-dealers. The auction cleared at a slightly better-than-expected yield, calming fears of a buyer strike and confirming that Treasuries still hold their safe-haven appeal. This capped off a week in which $119 billion in new Treasury supply was absorbed smoothly, helping to anchor yields and suggesting that markets remain focused more on economic fundamentals than on structural or political risk.
Elsewhere, speculation around potential successors to Fed Chair Powell and chatter about future rate cuts helped support renewed optimism in fixed income markets. FOMC minutes from the June meeting revealed a growing preference among policymakers for cutting rates later this year...if inflation behaves. The minutes also flagged concerns that tariffs could push inflation higher for longer. While a July cut is now unlikely and a September move is being debated, upcoming inflation data remains critical for shaping expectations. For now, the market appears range-bound, with the 10-year note stuck near 4.40 percent and little sign of breakout pressure until more data comes in.
Meanwhile, a surprise tweet from Bill Pulte hinted that the GSEs (Fannie Mae and Freddie Mac) would begin accepting VantageScore 4.0 alongside FICO for mortgage underwriting, raising questions across the industry. While details are sparse, the move could expand credit access by factoring in rent history and shorter credit files. However, operational questions abound, including which score gets used for pricing, eligibility, and mortgage insurance. The Mortgage Bankers Association welcomed the competitive shift but emphasized the need for clear guidance and implementation planning. The broader market absorbed this news while also digesting Trump's latest escalation in the trade war, with a planned 50 percent copper tariff and a firm August 1 deadline for broader global levies. Despite all this, inflation expectations remain relatively stable and mortgage application volume increased 9.4 percent last week, signs that markets are taking the trade drama in stride, at least for now.