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Fears of a tariff-driven trade war and recession have brought mortgage rates down sharply this week, as investors pull billions out of the stock market and stash that money in safe havens like government bonds and mortgage-backed securities (MBS) that fund most home loans.
Demand for bonds and MBS pushed prices up and yields down. Yields on 10-year Treasury notes, a barometer for mortgage rates, briefly touched a 2025 low of 3.89 percent Friday — a 32 basis-point drop from Wednesday, when the Trump administration announced sweeping tariffs on goods from almost all U.S. trading partners.
Rates on 30-year fixed-rate conforming loans dropped 12 basis points on Thursday to 6.48 percent, according to rate lock data tracked by Optimal Blue. That brought rates on the popular home loan down more than half a percentage point from this year’s high of 7.05 percent on Jan. 14. Although Optimal Blue data lags by a day, data tracked by Mortgage News Daily showed rates on 30-year fixed-rate loans came down by another eight basis points Friday.
The Trump administration has acknowledged that tariffs may result in a temporary slowdown in the economy, but the president and his advisors insist that they’ll lead to growth in the long run if more goods are produced in the U.S.
But economists have warned that tariffs could disrupt supply chains and spark a trade war if other nations retaliate. This week’s big pullback in the stock market — the S&P 500 is down 10 percent since tariffs were announced on April 2 and 17 from an all-time high seen in February — shows investors are worried about the prospect of a recession.
President Trump expressed frustration on his social media platform, Truth Social, Friday as China — which is facing duties of 54 percent on its U.S. exports — announced plans to impose duties of 34 percent on U.S. goods.
“CHINA PLAYED IT WRONG, THEY PANICKED – THE ONE THING THEY CANNOT AFFORD TO DO!” Trump posted Friday.
Trump then turned to the Federal Reserve for help, announcing that now “would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly.”
Claiming that energy prices and inflation are down and employment is up, the president urged Powell to, “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Annual inflation, as measured by the Federal Reserve’s preferred metric, the Personal Consumption Expenditures (PCE) price index, has been moving away from the Fed’s 2 percent target.
Speaking at a conference in Virginia Friday, Powell said inflation could be more persistent as the cost of tariffs is passed on to consumers.
“I make it a practice not to respond to any elected official’s comments, so I don’t want to be seen to be doing that,” Powell said.
But he acknowledged that surveys show consumers “are unhappy about the economy,” largely because price increases that were implemented when inflation was higher aren’t being undone.
Federal Reserve Chairman Powell in Virginia Friday
“Inflation is now back down to much more normal levels,” Powell said. “Unemployment is low. The economy’s been growing, but people are still experiencing that high price level. In other words, prices don’t go down. They know they’re paying much more for the basic necessities of life, and they’re right not to be happy about it.”
Inflation trending up again
Since falling to a 2024 low of 2.1 percent in September, the PCE price index climbed to 2.6 percent in December following Trump’s reelection, and stood at 2.5 percent in February, according to data released March 28.
Payrolls grew by 228K jobs in March
Data released by the Bureau of Labor Statistics Friday showed employers added 228,000 jobs in March, up from 117,000 in February and the average monthly gain of 158,000 over the last 12 months.
But the unemployment rate continued to tick up to 4.2 percent, with 7.1 million Americans out of work.
Samuel Tombs
“March payrolls provide a timely reminder that key parts of the economy are largely unaffected by the developing trade war,” Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients.
For now, Tombs said, Pantheon Macroeconomics forecasters expect less damage to employment than implied by the drop in stock prices.
“The earnings of large multinational corporations are much more exposed to the tariffs than inward-looking services businesses, which comprise the bulk of the U.S. economy,” Tombs wrote. “Accordingly, our base case is that payroll growth slows to a 50,000-to-100,000 range over coming months, though an outright drop can no longer be dismissed as an implausible fantasy.”
Unemployment rate ticks up
Tombs said the small rise in the unemployment rate in March “is not a significant movement.”
With no signs that a recent slowdown in immigration is tightening the labor market, Pantheon Macroeconomics forecasters expect the unemployment rate to climb to 4.5 percent this year.
“Worse outcomes are now plausible,” Tombs wrote. “A lot hinges on the President’s unknowable next steps.”
Mortgage rates in retreat
Rates on 30-year fixed-rate mortgages have come down more than a full percentage point from a post-pandemic high of 7.83 percent registered in October 2023, but still have a long way to go before they’re back to last year’s low of 6.03 percent.
After the Fed started cutting rates in September, mortgage rates climbed from a 2024 low of 6.03 percent on Sept. 17 to a 2025 high of 7.05 percent in January as the Fed put further rate cuts on hold.
Heightened fears of a trade war and recession mean bond market investors who fund most mortgages are certain that the Fed will start cutting rates again in June — a sentiment that gives mortgage rates more room to come down.
Futures markets tracked by the CME FedWatch tool showed investors on Friday pricing in a 94 percent chance of a June Fed rate cut, up from 79 percent on Thursday. While the odds of a May 7 rate cut were still seen as long Friday, at 32 percent, that’s up from 22 percent Thursday.
Futures markets tracked by the CME FedWatch tool predict a 64 percent chance the Fed will cut rates four times this year — by a full percentage point — up from 56 percent Thursday.
But Powell said the current situation makes it tricky for the Fed to pursue its dual mandate of full employment and price stability. While the Fed can use interest rates to slow down or speed up the economy over time, higher unemployment would call for speeding up the economy (by lowering rates), and higher inflation would call for slowing it down (by raising rates).
“What we face is, you actually have risks for higher unemployment and higher inflation, and that’s difficult for a central bank,” Powell said.
Alluding to the “stagflation” of the 1970s — when the U.S. muddled through a period of high inflation, stagnant economic growth and high unemployment — Powell said it’s too soon to draw such analogies.
“I would say you’re not in a situation like we were in the 1970s, where those two goals (full employment and price stability) were really both pulling in opposite directions,” he added. “That’s just very hard for a central bank to be the answer to a situation like that. That’s not the situation we’re really in today.”
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