Will steady mortgage rates calm buyers and sellers this spring?

The relatively flat trajectory for rates reflects the market’s belief that the federal funds rate won’t change anytime soon. Federal Reserve policymakers didn’t offer any surprises last week when they ended their rate-cutting cycle by holding the policy rate at a range of 3.5% to 3.75%. And the CME Group’s Fed Watch tool showed that the next rate cut isn’t likely to materialize until June or July.

Any recent rate increases by lenders are more likely tied to the nomination of Kevin Warsh as the next Fed chair. Some investors may view Warsh as more aligned to the Trump administration’s desire for lower rates, and they may be pricing in the risk of looser monetary policy in the near term that could require higher rates in the long term.

“At a time when the administration is signaling a desire for easier policy, the choice of Kevin Warsh pulls in the opposite direction,” said Jeff DerGurahian, chief investment officer and head economist at loanDepot.

“Warsh is widely viewed as a more hawkish policymaker with a conservative approach to the Fed’s balance sheet and an eye toward a stronger U.S. dollar. During his prior tenure as a Fed Governor, Warsh was generally less likely to cut rates or take aggressive action compared to current Chair Jerome Powell.”

MND also noted that rates moved slightly higher Monday in the wake of stronger-than-expected manufacturing data that prompted weakness in the bond market.

“Political uncertainty, both domestically and internationally, is going to be an important factor in rate trajectory, leading to rate volatility and probably higher rates in the weeks ahead,” Lisa Sturtevant, chief economist for Bright MLS, said in a statement. “Expectations for a robust spring housing market depend a lot on where mortgage rates head. Right now, there is still a lot of uncertainty which could continue to hold buyers and sellers back.”

What does the future hold?

In a note to investors on Jan. 28, analysts at Keefe, Bruyette & Woods (KBW) wrote that there are no changes to its baseline economic forecast after last week’s interest rate decision.

But KBW diverges from the market consensus by calling for a 25-bps cut by the Fed in March, followed by another in early 2027. It forecasts gross domestic product growth of 2.3% and 2% in 2026 and 2027, respectively, along with a peak unemployment rate of 4.5% this year. It also calls for the 10-year Treasury yield, which closely aligns with mortgage rates, to expand “modestly” to 4.2% through the end of next year.

Two Fed officials — Stephen Miran and Christopher Waller — dissented last week and favored a 25-bps rate cut. Waller offered more details on his vote in a statement published Friday.

“Three cuts to the policy rate last year have moved it closer to a neutral setting but monetary policy is still restricting economic activity, and economic data make it clear to me further easing is needed,” Waller said, pointing to ongoing weakness in the labor market. Compared to the prior 10-year average of roughly 1.9 million jobs added per year, 2025 saw a gain of only 600,000 jobs and that is expected to be revised downward to zero growth, he said.

“Let this sink in for a moment — zero job growth versus an average of almost 2 million for the 10 years prior to 2025. This does not remotely look like a healthy labor market,” Waller said.

In the near term, there will be fewer data points for policymakers to draw from as the U.S. Bureau of Labor Statistics (BLS) said Monday that the January jobs report would not be published on time this week due to the partial federal government shutdown.

The House of Representatives voted Tuesday to approve a funding package and President Donald Trump was expected to sign it, ending the brief shutdown that began Saturday.

The labor market has shown signs of bending but not breaking, with nonfarm payroll positions growing by 50,000 in December. HousingWire Lead Analyst Logan Mohtashami noted that, with the exception of recessions, 2025 was the weakest year for U.S. job growth this century.

Inflation, meanwhile, continues to run higher than the Fed’s target of 2% per year. December’s annualized growth rate of 2.7% was up from 2.4% in November. The BLS is scheduled to release the Consumer Price Index for January on Feb. 11.

Where mortgage rates and housing market activity head in the next few months is up for debate, DerGurahian indicated.

“Several uncertainties remain, including whether Congress ultimately confirms the new Fed Chair amid Powell’s ongoing DOJ investigation and whether Powell retains his remaining two years as a Governor on the (Federal Open Market Committee),” he said. “While Powell remains Chair through the Fed’s May meeting, markets are likely to refocus on incoming economic data as the primary driver of long-term Treasury yields and mortgage rates.”