This week in the mortgage industry was defined by a confluence of political speculation, shifting economic data, and renewed momentum in rate-cut expectations. Markets responded strongly to increasing speculation that former President Trump could name a successor to Federal Reserve Chair Jerome Powell well before his term ends in May 2026. The potential for a more dovish nominee stoked investor anticipation of earlier rate cuts, pushing the 2-year Treasury yield below 3.75 percent and weakening the dollar to a three-year low. This shift in sentiment added pressure to the Fed’s already complex policy calculus and further anchored expectations for more accommodative monetary policy ahead.
The broader economic data added to this narrative of a softening U.S. economy. First-quarter GDP was revised downward to -0.5 percent, driven by the weakest personal consumption growth since 2020. Additional signs of weakening included a sharp drop in wholesale inventories, a widening trade deficit, and rising continuing jobless claims (to the highest level since late 2021) despite an improvement in initial claims. Meanwhile, new home sales dropped 13.7 percent month-over-month, marking the weakest pace since October 2024. Consumer confidence also dipped in June, reflecting growing uncertainty about inflation, jobs, and the impact of Trump’s trade war. All of this fueled expectations that the Fed may soon need to take more decisive action to prevent broader economic deterioration.
Housing data painted a similarly mixed picture. Pending home sales rose slightly in May, with gains across all four regions. However, market sensitivity to mortgage rates remains a headwind: affordability challenges are still acute, especially in supply-constrained regions like the Northeast. Encouragingly, mortgage rates continued to drift downward for the fourth consecutive week, with the 30-year fixed average falling to 6.77 percent, which is 9 basis points lower than this time last year. At the same time, the Case-Shiller and FHFA home price indexes showed monthly declines in April, indicating a softening in home price appreciation, particularly in markets that saw rapid pandemic-era growth.
Major developments from Washington added further complexity. The Federal Reserve proposed changes to its supplementary leverage ratio, potentially freeing up bank capital to support the $29 trillion Treasury market and, by extension, MBS liquidity. Separately, Fannie Mae and Freddie Mac announced the creation of a joint fintech entity to manage their $6.5 trillion MBS portfolio and license their technology, a move that has generated buzz and speculation across the mortgage ecosystem. Meanwhile, the U.S. House passed the Homebuyers Privacy Protection Act, aimed at curbing trigger leads, marking another step in consumer protection legislation relevant to mortgage lenders and brokers.
Finally, though Chair Powell held a cautious tone during his congressional testimony, dovish cracks appeared in the Fed’s consensus. Governors Waller and Bowman suggested rate cuts could begin as soon as July, citing benign inflation and rising labor market risks. With today’s PCE inflation report showing relatively benign inflation, the probability of a July rate cut has doubled in recent days. This potential policy pivot, alongside geopolitical calm and signs of economic fatigue, has helped stabilize markets, for now. Yet with political pressure mounting, central bank independence under the microscope, and a volatile global backdrop, it would benefit all of us to remain on high alert for further shifts across these sectors.