Portland Mortgage Market Update — September 19, 2025

Fed drops rate by .25%! Finally! This week saw the year's first cut to the Fed Funds rate, and mortgage rates…. worsened as a result? But the news has been clamoring about lowering the Fed rate would help mortgage rates and even CBS News was running a story saying mortgage rates were at all time lows thanks to the Fed cut (although that story linked to info for an affiliate and read as more of an advertisement than actual journalism). The truth is the market had been anticipating this cut for a couple of weeks now and already had it priced into rates. Since mortgage rates generally follow the yields on 10 year Treasury Notes, it makes sense that the action on the note would follow the sentiment of the market. And if 100% of the market is expecting the Fed to lower rates by .25%, the note that gets sold has a lower yield that closer aligns with what the near future will be. The only way mortgage rates would have dropped more on the news would be if the Fed either cut the rate by 50 basis points OR came out saying they are very worried about the economy and many more severe cuts are incoming.

So let's unpack what the Fed did say. Of most interest was they released their Summary of Economic Projections (SEP, or more commonly known as the dot-plot chart). In it, each Fed member predicts where the Fed rate will be at the end of each year for the next 3-4 years. Thankfully 12 of the 19 members agree more cuts are needed before the end of the year, with 9 of those members thinking two more cuts are necessary. Initially rates improved on seeing this, but then Chairman Jerome Powell spoke and really did his best to kill the party. In his post-meeting press conference, he referred to this rate cut as "risk management" meaning since inflation is creeping back up due to tariffs, and unemployment seems to be worsening, they had to do something since doing nothing obviously wasn't working. He also pointed out that the weakening labor market is now of equal importance as the increasing inflation, and since both of those factors are trending in the wrong directions there is concern among the market of stagflation setting in. Regardless, the market will take a week or so to digest all this, then point to the fact that future rate cuts are likely incoming causing mortgage rates to settle down again (barring any crazy employment or inflation reports that come out in the interim.)

News for next week includes the 2nd quarter's GDP report and the Fed's preferred measure of inflation, the PCE report. Both of these have the potential to impact interest rates, so if you have any clients that are shopping mortgage lenders and/or trying to time the market with interest rates, have them give me a call over the weekend so we can discuss strategy moving forward in these tumultuous times!