Federal Reserve Signals Possible Interest Rate Cut, Boosting Housing Market Hopes

Potential rate cut could lower mortgage rates, providing a vital lift to the housing market.

At the Jackson Hole Economic Symposium in Wyoming, Federal Reserve Chairman Jerome Powell suggested that a potential interest rate cut could occur as early as September 2025, offering a glimmer of hope for the struggling housing market. Powell highlighted concerns about persistent inflation and a softening labor market, indicating a shift in the Fed’s policy considerations.

“The risks are tilting,” Powell noted. “The labor market, while appearing balanced, is showing signs of strain due to slower growth in both labor supply and demand.” This follows five consecutive meetings where the Fed maintained steady rates, citing elevated inflation and an uncertain economic outlook. However, Powell’s recent remarks suggest a growing focus on the weakening job market, often a precursor to broader economic slowdown that may necessitate a rate cut.

Implications for Homebuyers

The housing market has faced challenges due to the Fed’s restrictive monetary policies. Since the federal funds rate increase in March 2022, mortgage rates have risen from 3.7% to 4.6%, reducing affordability for many buyers. While the Fed doesn’t directly set mortgage rates—lenders base them on the 10-year Treasury note—a rate cut could indirectly ease borrowing costs, though this isn’t guaranteed. For instance, after the Fed’s last rate cut in December 2024, mortgage rates remained high.

Housing experts, including Federal Housing Finance Agency Director Bill Pulte, believe lower rates could reinvigorate buyer interest. Erika Ludvigsen, Homes.com’s national director of residential analytics, concurs: “A reduction in interest rates is likely to lower mortgage costs, improve affordability, and stimulate demand. This could also bolster the economy and labor market, encouraging confident homebuying decisions.”

As of August 21, 2025, Freddie Mac reported the average 30-year fixed mortgage rate at 6.58%, the lowest this year and unchanged from the prior week. Combined with moderating home price growth and a significant increase in listings, these conditions could provide the housing market with much-needed momentum.

Rising Inventory and Moderating Prices

Homes.com data reveals a 26% surge in for-sale listings in July 2025 compared to the previous year, adding nearly 300,000 homes to the market. With over 1.4 million homes available—the highest monthly supply since at least 2017—buyers have more options. Median home prices rose 2.1% to $393,000 in July, an $8,000 increase from last year, but price growth is slowing, according to Ludvigsen. She predicts that high mortgage rates and increased inventory could further temper national home price appreciation in the latter half of 2025, though some local markets may see declines.

Persistent Inflation Challenges

Inflation remains a concern, holding steady at 2.7%, above the Fed’s 2% target. Powell noted that recent tariffs are visibly impacting consumer prices, with effects expected to intensify in the coming months. “The uncertainty lies in whether these price pressures will lead to sustained inflation,” he said, emphasizing the Fed’s challenge in balancing its dual mandate of price stability and full employment.

Powell also highlighted a cooling labor market as a key factor in the Fed’s deliberations. The U.S. economy added just 73,000 jobs in July 2025, per the Bureau of Labor Statistics, with downward revisions of nearly 260,000 jobs for May and June, signaling economic slowdown.

Fed’s Independence Amid Political Pressure

Powell’s remarks come amid heightened scrutiny. President Donald Trump and FHFA Director Pulte recently called for the resignation of Federal Reserve Governor Lisa Cook over mortgage fraud allegations. Additionally, Pulte and members of Congress have criticized Powell’s high-rate policy for burdening homeowners and prospective buyers. Powell, however, stressed the Fed’s commitment to data-driven decisions, stating, “Our monetary policy is not predetermined. Decisions will be based solely on economic data and risk assessments, free from political influence.”

Powell also addressed the impact of tariffs, noting their slow movement through supply chains and potential to drive sustained inflation. “The evolving nature of tariffs complicates the adjustment process, but we’re closely monitoring their effects,” he said.

Looking Ahead

A potential rate cut could provide a lifeline to the housing market, encouraging buyer activity and stabilizing prices. With increased inventory, moderating price growth, and the possibility of lower borrowing costs, the market may see renewed optimism in the months ahead. However, the Fed’s cautious approach underscores the delicate balance between curbing inflation and supporting economic growth.