Washington State Mortgage Rates Heading Lower

📉 Borrowing Costs on the Decline: What’s Fueling the Trend?
1. Fed Holds Steady — Markets Bet on Soon to Come Cuts
• As of July 1, 2025, the Fed paused the federal funds rate at 4.25%–4.50%—the fourth consecutive hold—but shifted its dot-plot and commentary to now signal three anticipated cuts by the end of the year, rather than a single cut (investopedia.com, tradingeconomics.com).
• Major Wall Street forecasters are following suit:
o Goldman Sachs expects three 25 bp rate cuts (likely in Sept, Oct, Dec) (reuters.com).
o Morningstar sees a cumulative 50 bp cut in 2025, with more in 2026 (morningstar.com).
o Deloitte predicts the first 25 bp cut in Q4 2025 and steady easing into 2026 (deloitte.com).
2. Inflation & Labour Signals Cooling
• Inflation remains stubborn—above the Fed’s 2% target—but appears to be moderating, especially on core services and shelter costs (nypost.com).
• Early signs of softening in the labor market (weaker job growth, rising unemployment) have stirred concerns about the economy overheating (investors.com).
3. Internal Fed Division: Hawkish vs. Dovish
• While Chair Powell remains cautious—warning of tariff-driven inflation and sticking close to data (investopedia.com)—other Fed leaders like Christopher Waller and Michelle Bowman are openly advocating for earlier cuts, even as soon as July (marketwatch.com).
• Split votes in recent meetings reflect this dual narrative shaping cut expectations.
4. Bond Market & ZLB Considerations
• A joint paper by the NY and San Francisco Fed highlights the increasing,* albeit slim,* risk of hitting the zero lower bound in the coming years—signaling room for forward movement in cuts (reuters.com).
• Meanwhile, bond yields (e.g., 10 year Treasury) have cooled from April highs, helping push down mortgage and other long-term rates (en.wikipedia.org).
5. Market Expectations & Political Pressures
• Futures markets now price in a > 50% chance of three cuts by year-end, up from just 30% a week ago (marketwatch.com).
• Politically, dovish voices are increasing:
o Treasury Secretary Bessent sees a potential September cut if tariffs do not inflate prices (reuters.com).
o Former President Trump is urging aggressive easing, promising a new, dovish Fed chair candidate (businessinsider.com).
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Why This Matters: 3 Real World Impacts
Stakeholder What It Means
Homebuyers & homeowners Mortgage rates inch down; more manageable monthly payments if cuts come in Sept–Dec .
Consumers & Businesses Cheaper credit supports spending, lending, and investment—helping fragile parts of the economy.
Markets Stocks—especially tech and housing—benefit, while bonds rally (prices rise as yields fall) .
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🏁 Looking Ahead: A Tighter Timeline
• September emerges as the most likely kick-off, per CME FedWatch tool and Goldman Sachs (investopedia.com).
• Some argue for a surprise in July, but the Fed is currently signaling caution, influenced by tariffs and inflation trends (nypost.com).
• December remains a conservative baseline, but market confidence is rising.
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Final Thoughts
While no cuts have yet occurred, the shift in sentiment—from “higher for longer” to genuine easing expectations by year-end—is unmistakable. With inflation easing, labor data softening, internal Fed divisions growing, and markets pricing in upcoming cuts, 2025 appears poised to mark a turning point for interest rates.
Whether you’re considering refinancing your mortgage, investing, or planning budget forecasts, preparing for lower rates later this year is wise.
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• marketwatch.com
• investors.com
• reuters.com
• nypost.com https://investopedia.com