Federal Reserve Rate Cut Outlook & Impact on Home Sales
Mortgage rates have fallen to their lowest levels in 8 months, giving a much-needed boost to buyer affordability. At the same time, Goldman Sachs and other major financial institutions have become increasingly optimistic about the Federal Reserve initiating interest rate cuts in late 2025, with the most likely target date set for the September 16–17 FOMC meeting.
This optimism isn’t based on speculation—it reflects meaningful shifts in macroeconomic data. While the Fed's policy path remains fragile and highly dependent on incoming data, there are compelling signals supporting a more dovish turn.
Why the Shift? Unpacking Goldman Sachs' Revised Forecast
Goldman Sachs recently revised its rate outlook based on several emerging trends:
First, the inflationary impact of tariffs appears more muted than expected. Despite initial concerns, prices haven’t surged across the board. This could be due to companies absorbing some of the added costs or adapting global supply chains to minimize the effects.
Second, the economy is seeing stronger-than-anticipated disinflationary forces. These include gains in productivity, ongoing technological efficiencies, and evolving consumer spending behaviors—factors that have collectively helped slow the pace of inflation without triggering a recession.
Lastly, while the job market still appears strong on paper, Goldman Sachs notes signs of a softening labor market beneath the surface. Job openings are down, and it's becoming harder for workers to find new roles—conditions that could prompt the Fed to ease policy in support of continued growth.
Key Drivers Behind the Fed’s Outlook
1. A Cautious Tilt Toward September
Fed minutes and market indicators suggest a growing preference for a rate cut as early as September. However, policymakers remain cautious, waiting for consistent signs of inflation easing and labor softening.
2. Balancing Economic vs. Political Pressures
While some Fed officials are signaling readiness for near-term easing, others remain inflation-focused. Political figures have been pressuring for cuts, but the Fed continues to prioritize economic data over external noise.
3. Tariff Policy Still a Wildcard
Despite recent easing, tariffs remain a key variable. If new trade tensions arise or if inflation rebounds due to import costs, it could complicate the Fed's easing trajectory.
Source: Freddie Mac PMMS via FRED (weekly averages, Chicago-Fed adjusted)
Impact on Mortgage Rates & Home Sales
📉 Rates Reach 8-Month Lows
As of July 2025, average mortgage rates have fallen to their lowest point since late 2024:
• 30-year fixed: ~6.58%
• 15-year fixed: ~5.86%
• 30-year jumbo: ~6.65%
• 5/6 ARM: ~6.00%
This drop has already begun to lift mortgage application volumes modestly.
🏠 What This Means for Buyers & Sellers
If the Fed follows through with its September cut, we could see:
• Improved affordability and borrowing power
• A rebound in first-time buyer activity
• A modest late-year lift in home sales volume, especially in entry and mid-tier segments
Sellers should stay focused on pricing strategically, as affordability remains a top concern and buyers continue to be rate-sensitive.
Sources & Further Reading
Goldman Sachs Forecast & Analysis: https://www.noradarealestate.com/blog/interest-rates-predictions-for-the-next-2-years-by-goldman-sachs/
Barron’s: June Minutes Point to Divided Federal Reserve: https://www.barrons.com/articles/fed-meeting-june-interest-rates-cut-5391c409
MarketWatch: What Will It Take for the Fed to Cut Rates?: https://www.marketwatch.com/story/what-will-it-take-for-the-fed-to-cut-rates-in-september-look-here-for-clues-77dd2770
MarketWatch: September Rate Cut Odds Rise: https://www.marketwatch.com/story/the-odds-of-a-september-fed-rate-cut-look-high-after-june-jobs-report-but-it-may-be-a-tough-call-for-powell-cca97e58
Freddie Mac PMMS Data: https://www.freddiemac.com/pmms