Federal Reserve Keeps Rates Steady as Risks of Higher Unemployment and Inflation Rise

WASHINGTON—The Federal Reserve’s Open Market Committee decided unanimously on May 7 to keep rate steady at between 4.25% to 4.5%. In a statement, the FOMC said that at present the unemployment rate has stabilized at a low level, but inflation remains inflated.

Realtors and homebuyers who were hopeful of a rate cut, may have to wait a while as the Fed assesses data going forward and particularly the impact of tariffs imposed by the Trump administration recently. The Federal Reserve Board stressed that it will continue to press forward on its goal of bringing the inflation rate back to 2%.

“Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” the FOMC stated.

Federal Reserve Chairman Jerome Powell, in a press conference after the FOMC vote said that the economy remains strong and that data does not yet show weakening. He also noted that if large tariff increases are kept in place, the economy would likely see higher inflation and lower employment.

While he noted that there are concerns about negative impacts tariffs might cause on business activity and consumer sentiment, the data at the moment is still showing a strong economy.

Powell added that the Fed’s current policy puts it in a good place to react to economic conditions going forward.

Earlier in the day, the Mortgage Bankers Association reported that mortgage applications 11% rose for the week ended May 2 as compared to a week earlier.

“The economic news last week included a negative reading for first-quarter GDP growth and further signs of contraction in the manufacturing sector, mixed with a solid employment report for April. The net impact on mortgage rates was mostly downward but just back to levels from early April. The 30-year fixed rate declined to 6.84%,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Conventional purchase application volume increased 13% and was up 9% from year-ago levels, a surprisingly strong move given lingering economic uncertainty. Borrowers of conventional loans tend to have larger loan sizes and more apt to be move-up buyers. Government purchase loans were also up 6% for the week, led by a 9% growth in FHA purchase applications.”

Added Fratantoni, “With rates moving lower, refinance volume increased 11%, led by VA refinance applications, which were up 26%.”

The refinance share of mortgage activity decreased to 37.1% of total applications from 37.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 8.3% of total applications.

The FHA share of total applications decreased to 16.4% from 16.7% the week prior. The VA share of total applications increased to 13.3% from 13.1% the week prior. The USDA share of total applications decreased to 0.5% from 0.6% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) decreased to 6.84% from 6.89%, with points increasing to 0.68 from 0.67 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $806,500) decreased to 6.86% from 6.88%, with points decreasing to 0.46 from 0.60 (including the origination fee) for 80% LTV loans.