Federal Reserve statement explained – July 2025

With one eye on a labor market that’s starting to show some cracks and the other on price pressures that may start to build as a result of ongoing trade and tariff negotiations, the Federal Open Market Committee of the Federal Reserve (Fed) chose to leave the federal funds rate unchanged in the range of 4.25% – 4.5%.

In talking about the economy, the Fed says that the labor market remains in good shape, but inflation is elevated. Overall economic growth is being affected a bit by changes in net exports. Businesses have been trying to get ahead of tariffs.

Let’s do a deep dive on the economic conditions that have led to this and what it could mean for those looking to purchase or refinance a home.

Economic conditions

The Fed has a couple primary goals when it comes to setting monetary policy: stable prices and labor market conditions that lead to maximum employment. Although it sounds straightforward, these goals can conflict with each other. Because of this, it’s a constant balancing act. We’ll touch on the tension as we look at economic data.

When the Fed looks at the labor market, they’re focused on a few different things. At the top line, there’s the unemployment rate from the Bureau of Labor Statistics. This was down 0.1% at 4.1% in June compared to May. The downside is that this may be because the labor force shrank a corresponding amount to 62.3% in June.

The other report that the BLS puts out is a weekly read on jobless claims, which measure the number of people who have initially filed or continue to file for unemployment insurance.

A substantial increase in the number of continuing claims lasting beyond the initial week indicates people may be having a harder time finding work. This was at 1.955 million for the week of July 12, about 100,000 claims higher than a year ago.

Before we leave the employment report, the other data point the Fed gets from businesses is the average hourly wages. The Fed wants to see wages rising, but if they rise too fast, it could be a sign that businesses are feeling the pressure to pay their employees more to keep up with inflation. Wages were up 0.2% in June.

For a direct look at those inflation pressures, the Fed prefers the personal consumption expenditures index from the Bureau of Economic Analysis. This is running at a year-over-year rate of 2.3%. Excluding food and energy, prices are up 2.7%, as of May 2025. The Fed’s target is 2% annual inflation.

Looming over all of this is how soon tariffs might affect inflation. While effective dates have been continually in flux, there are signs that producers are feeling the pinch. The S&P Global Purchasing Managers Index shows that input prices are rising for both services and goods. It remains to be seen how long companies might be able to hold some of the cost on their books and how much will be passed on to consumers.

Given that the labor market appears to be hanging in there and price pressures or lack thereof from tariffs remain up in the air, the move the Fed has been able to (mostly) build consensus around is no move. Fed Governors Christopher Waller and Michelle Bowman preferred to cut the federal funds rate by 25 basis points.

Bond traders still anticipate the Fed will lower rates this year, but current projections are for a September rate drop.

What this means for home buyers

Mortgage rates aren’t directly tied to the federal funds rate. Rather, they correlate more with the movements of the 10-year U.S. Treasury. Historically, the 30-year fixed mortgage rate is about 2% higher than the 10-year Treasury.

But mortgages are traded in the bond market and when rates go up or down for other investments, the yields on the mortgage-backed securities (MBS) that underlie mortgage rates go up as well. There is a direct correlation between the yield on MBS and your mortgage rate. They go up or down together.

However, it’s important to note that mortgages are packaged into MBS and sold on the bond market 2 months or more after you close on the mortgage. This means the rate you get today isn’t a reflection of conditions in today’s market. Rather it’s a reflection of market expectations for where rates will be in the near future.

If you see a rate you like today, go ahead and lock. It protects you from upward movement in the future and you may be able to put a winning offer on the house you want while there’s less competition. Focus on the payment more than the rate itself. You can always look to refinance if the pendulum swings and rates fall.

What this means when refinancing

If you're thinking about refinancing, steady rates can offer predictability—even when rates aren't falling. Accessing your home equity to consolidate debt or do home improvements may offer a better interest rate than you would get through personal loan or credit card financing. Just make sure you can afford the payment.

If you feel like you’re ready to buy a home or refinance your current one, get your application started.