Mortgage Rates Today, July 7, 2025: Markets Unpredictable on Tariff and Deficit News

The bigger picture

Markets face an uncertain and difficult day as they come to terms with two vital news events that have occurred since trading last closed on Thursday. For mortgage rates, those might pull in opposite directions, with one exerting upward pressure, while the other might drag them lower.

But we can't be sure how markets will react until the opening bell rings and investors get down to business.

Deficits

On Independence Day, President Donald Trump signed the "One Big Beautiful Bill" into law. That was the legislation's formal title, so it is now, perhaps confusingly, the One Big Beautiful Bill Act (OBBBA). Has there ever been a Bill Act before?

On Thursday evening, The Wall Street Journal ran a story under the headline, "Wall Street Worries as Crisis-Level Deficits Become the Government’s Default Mode."

"The deficit, or annual gap between government revenue and spending, was $1.8 trillion, or around 6% of gross domestic product, last fiscal year," said the Journal. Moody’s estimates it will reach nearly 9% of GDP by 2035, pushing publicly held federal debt—or the sum of all the annual shortfalls—from a little under 100% of GDP now to more than 130%. That compares to the previous record of 106% in 1946."

That's the sort of borrowing level that we usually see only during major crises: World War II, a recession or depression, or perhaps a pandemic. And by maxing out the nation's credit card now, it will likely limit the U.S. Treasury's ability to borrow what it needs next time such a crisis arises.

Later in its article, the Journal reveals the potential implications for mortgage rates: "The long-term verdict might be rendered in U.S. bond markets. The U.S. borrows money by issuing Treasurys, and an oversupply of those bonds would drive up yields, which rise when prices fall. Because interest rates on other debt are linked to Treasury yields, that would also lift costs on mortgages, car loans and corporate bonds."

Legislators argue that the tax cuts will fuel such high growth that they will pay for themselves. However, the Committee for a Responsible Federal Budget says, "The latest estimates from third-party modelers confirm what we’ve said several times before: economic growth will not pay for tax cut extensions." You might think that both sides would say what they are saying.

Tariffs

So, the OBBBA is likely to push mortgage rates higher. But the weekend's tariff news might try to drag them lower, at least in the short term.

You may remember "Liberation Day" on April 2. That was when the U.S. government unveiled new tariffs on most imports from almost all countries. And together they were the highest ones since 1909, according to the Budget Lab at Yale.

After a week of considerable market turmoil, on April 9, most of those tariffs were paused for 90 days. And investors acted as if they'd been banished forever.

But the 90 days are up on Wednesday. And officials have been signaling that most tariffs will resume on August 1, typically at or near their April 2 levels.

CNN quoted one last Friday morning: "They’ll range in value from maybe 60% or 70% tariffs to 10% and 20% tariffs ..." More reassuringly, Treasury Secretary Scott Bessent suggested that about 100 countries could get a 10% reciprocal rate, according to Reuters.

However, yesterday, Bessent clarified his position. "President Trump is going to send letters to some of our trading partners saying that ‘if you don’t move things along, then on August 1st, you will boomerang back to your April 2nd tariff level,'" he told CNN's State of the Union.

Many, perhaps most, economists and investors expect tariffs to lead to an economic downturn. Many fewer are still talking about a recession compared with April, but that remains a possibility.

Slowdowns and recessions tend to drive mortgage rates lower, which is one of their very few silver linings. Will that be enough to counteract the upward pressure on those rates from expected deficits? Who knows?

However, there's a sting in the tail with tariffs. They often lead to a spike in inflation, and, right now, nobody knows whether this time that will be transient or persistent, assuming it happens at all.

Hotter inflation pretty much always leads to higher borrowing costs across the board, including higher mortgage rates.

How markets work

Investors try not to wait for economic data that proves or disproves a looming risk or benefit. Instead, they attempt to calculate the odds of something occurring and invest ahead of time on that basis.

In other words, they wager on the future. Heaven knows how they'll cope with today's complex and competing risks and benefits.

Coming up

Although economic reports are usually the main drivers of changes to mortgage rates, they're not the only ones. The general mood in markets and economically consequential news can also affect those rates. News items concerning tariffs and deficits are especially influential at the moment.

Mortgage rates today

No economic reports appear on today's MarketWatch economic calendar. Indeed, this whole week looks set to be a dull one from that perspective. We shouldn't be surprised if all this week's reports fail to attract enough attention to perceptibly affect mortgage rates, given everything else that's going on.

However, one event might. That is due on Wednesday afternoon, when the Federal Reserve releases the minutes of the last meeting of its rate-setting committee.

We already know quite a lot about what happened during that meeting. But there's an outside chance the minutes will reveal something new.