Mortgage Rates Today, May 7, 2025: It's Fed Day Today!

The bigger picture

We've been saying all week that this afternoon's announcement from the Federal Reserve about interest rates could be pivotal for mortgage rates. However, news emerged yesterday evening that could ultimately roil markets more.

Tensions in the Kashmir region have been especially high in recent weeks, but have existed since India and Pakistan gained independence from the UK in 1947. Yesterday, India accused Pakistan of being responsible for a “'barbaric' attack in which dozens of Indians were murdered in Pahalgam in Kashmir," according to The Guardian. India launched missiles into Pakistani territory in response, and Pakistan's government promised retaliation.

How could such skirmishes spook markets and possibly affect mortgage rates in America? Well, India is the fifth (fourth by some estimates) biggest economy in the world, having recently overtaken the UK. It is rapidly growing in importance, closing in on both Japan and Germany. Oh, and it and neighboring Pakistan are both nuclear powers.

With luck, tensions will de-escalate, as they often have in the past. But India-Pakistan has long been cited as one of the world's most likely flashpoints for nuclear war. And you couldn't blame investors if they get jittery.

"The secretary-general is very concerned about the Indian military operations across the Line of Control and international border. He calls for maximum military restraint from both countries,” said a UN spokesperson.“ The world cannot afford a military confrontation between India and Pakistan.”

It's the Fed, stupid!

As far as our coverage of today's Fed events is concerned, nothing much has changed since yesterday. So, we're mostly repeating that day's commentary with minor tweaks.

The main driver of movements in mortgage rates this week (absent imminent nuclear armageddon) is likely to be the two-day meeting of the Federal Reserve's rate-setting body, formally known as the Federal Open Market Committee or FOMC. If it decides to change general interest rates, it should announce the fact at 2 p.m. (EST) this afternoon.

That's looking increasingly unlikely, especially following last Friday's unexpectedly strong jobs report. The CME FedWatch tool puts the odds of those rates staying the same at 96.9%, barely changed from yesterday's 97.3%. But these things are never certain, and a shock announcement would almost inevitably affect mortgage rates.

You may have read that FOMC rate changes don't have any impact on mortgage rates. And that's true when the Fed does what everyone's expecting. Investors trade ahead of announcements based on those expectations, so there's no need for change when the two match. However, an unexpected cut or hike is very likely to immediately affect mortgage rates, moving them in the direction of other interest rates, though probably further.

Almost as important as the announcement will be a news conference hosted by Fed Chair Jerome Powell. That's scheduled for 2:30 p.m. (EST) this afternoon.

Investors will be hoping Powell will give clues to future cuts that the FOMC might have penciled in during its meeting. If he does, that, too, might affect mortgage rates. We suspect he'll continue his recent line: The Fed must wait to see how the trade war and other issues affect inflation and economic growth before signaling its next moves.

The Wall Street Journal reports that the trade war "threatens to put the Federal Reserve in a lose-lose scenario: Navigate a recession or manage a period of stagflation." And Powell's job today is unenviable. Still, he has a solid record for being unfappable, and we will be surprised if he doesn't hold his ground.

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.

Here's Comerica Bank's weekly insights into what to expect over the next few days: "The FOMC is expected to keep the fed funds target rate on hold at a range of 4.25% to 4.50% at Wednesday’s interest decision meeting. Policymakers will not release updated forecasts for real GDP, unemployment, inflation, or the fed funds rate; those quarterly forecasts will next be updated in June. Markets will be extra attentive to Chair Powell’s comments on the tradeoff between controlling inflation and supporting the job market. ... With real GDP down in the first quarter and employment up, nonfarm productivity will be lower and unit labor costs higher in the quarter’s release this week."

Mortgage rates today and later this week

The only economic report on today's MarketWatch economic calendar concerns consumer credit in March. And these rarely affect mortgage rates.

Today's Fed rate announcement is the event this week with the most potential to move mortgage rates, but only if there's a change to general interest rates. Few expect such a thing.

Tomorrow brings productivity numbers for the first quarter of 2025. They're expected to slump to -0.7% from +1.5% in the last quarter of 2024. A number lower than -0.7% might help mortgage rates fall, while a higher one could push those rates upward.

We're also due weekly new claims for unemployment benefits and wholesale inventories tomorrow, but those seldom trouble markets much.

No economic reports are due on Friday, but a veritable swarm of senior Fed officials (11 of them) have speaking engagements that day. Their views on future cuts to general interest rates will be interesting but less authoritative than the Fed chair's news conference this afternoon.