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INTEREST RATES

July 23, 2025

September Rate Cut on the Table After Mixed June Inflation Report

July 15, 2025 by Chen Zha
 

Mortgage rates will remain largely unchanged after inflation came in just below expectations in June, leaving the door open for a September Fed rate cut. 

Core prices, which the Fed prefers to focus on, increased 0.23% in June, just short of the 0.25% increase expected by forecasters. Much of the miss came from declining hotel prices, as the impact of tariffs started to come through on goods prices. 

  • Compared to last year, core prices (which exclude the volatile food and energy categories) increased 2.9%. This is an increase from the 2.8% reading for the past three months.
  • Some tariff-related impacts are becoming apparent among goods categories, with household furnishing and video and audio electronics both up about 1% from a month ago. Similarly, apparel increased 0.4% monthly after two months of negative readings, though the level is still modest. Overall, core goods inflation remains not too concerning, but household goods were up about 1% in June, about five times the previous rate of increase.
  • Services inflation is cooling, keeping overall inflation from accelerating. Shelter inflation, which makes up about 40% of core CPI, has cooled to just 0.2% monthly, the lowest level since February 2021. The decline from May to June was driven by a large drop in hotel prices (-2.9% monthly) rather than rent. Importantly for the Fed, however, shelter inflation has been expected to decline, as that metric lags market rent measures by 1-2 years. Since market rents have remained flat, we can expect CPI shelter to continue putting downward pressure on overall inflation for some time.

Inflation remains mild enough that the Fed could cut rates in their September 17th meeting if the next couple months of data are similar.

  • We are unlikely to get much clarity from Chair Powell at the July 30 Fed meeting. He will want to keep all options on the table as there are two inflation reports and two jobs reports between then and the September meeting.
  • The Fed is continuing to walk a delicate tightrope between a potentially deteriorating labor market and potentially accelerating inflation, both driven by elevated and uncertain tariff rates. 

Mortgage rates are unlikely to fall very much if the Fed comes through with two rate cuts by the end of the year, as markets have already priced those cuts in. 

  • If these get taken off the table, however, there is room for rates to climb. 
  • Mortgage rates could fall more if a recession that necessitates additional (and faster) rate cuts becomes apparent in the jobs data
 
 

 

 
Chen Zhao

Chen Zhao

 

Chen Zhao is the head of economics research, where she produces research on the housing market for public and internal audiences. Previously, she was an executive director leading housing finance and financial markets research at the JPMorgan Chase Institute. Prior to joining JPMCI, Chen was an economics consultant at Analysis Group, Inc., where she worked on financial litigation cases and led teams conducting health economics and outcomes research on behalf of pharmaceutical companies. While in graduate school, Chen was with the Center for Economic Studies and the Social Economic and Housing Statistics Division at the US Census Bureau, where she conducted applied microeconomics research using large scale restricted-access linked survey-administrative data. She started her career at the White House Council of Economic Advisers, where she focused on labor and health economics.

 

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