Portland Mortgage Market Update — July 18, 2025

It was inflation week and the market is still waiting to see the full impact of tariffs on the overall cost of goods. The result of this week was more or less a nothingburger. The CPI rose about .3% for the month and replaced a 0% reading from last year, which mean the year over year inflation also rose .3%. Regardless, this was what the market was expecting so there wasn't a ton of reaction. Likewise with the PPI, which measures wholesale inflation—the impact of tariffs should show in this report first but it was pretty tame and in line with market expectations. The market is now starting to think that tariffs may ultimately not have an impact on the inflation because companies might be absorbing the initial cost under the assumption any of these new tariffs would be short lived.

But even if tariffs are here to stay long-term, there is an argument to still pursue a rate cut. When the Fed started their last round of rate cuts in September 2024, the CPI was at 2.4% and unemployment was at 4.2%. In March, April, and May of this year we had CPI readings of 2.4%, 2.3% and 2.4.% (respectively) and unemployment rates of 4.1%, 4.2%, and 4.2% (respectively). So we have had three consecutive months with almost identical economic outlooks that necessitated rate cuts as previously, but no action taken. If you also look at GDP, which decreased by .5% in the first quarter of 2025, it seems like the current monetary policy is still too restrictive, and the Fed is moving their goalposts for what it takes to consider cutting rates.

And there has been a LOT of criticism this week about that. It has actually been a pretty wild week considering that the market is not reacting to inflation data but is instead focusing on the drama surrounding Trump firing current Fed Chair Jerome Powell. One of his potential replacements went on CNBC this week and laid out his plan (more or less) on how he would run the Fed. Kevn Warsh was a previous Fed Governor under Ben Bernanke's Fed and peeled back the curtain a bit on the current state of the Fed, saying that the current members are more or less in lockstep with Powell which is not his preferred make up. Under Bernanke, the room was filled with more varied, dissenting ideologies that would engage in more discussion (or even argument) to establish policy. Warsh argued having people with different opinions allowed the Fed to explore all options available, rather than going with the status quo. He also argued that the Fed changing their criteria for what conditions would allow for a rate cut weakened the global trust in the Fed. Either way, whoever ends up replacing Powell will almost certainly make cutting rates their top priority.