Interest rates remained steady despite the Fed holding off on cutting rates. Let's recap last week's key developments and preview what's on the horizon.

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The Federal Open Market Committee May 7th Statement

"Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4.25% to 4.50%. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

Here's what it means in simple terms: The economy is growing steadily, though changes in exports have caused some ups and downs. Unemployment is low and stable, and the job market is strong. However, inflation is still a bit high.

The Federal Reserve (the "Committee") wants to keep unemployment low and inflation at 2% in the long term. Right now, there's more uncertainty about the economy, and there's a higher chance of both unemployment and inflation going up.

To support these goals, the Fed decided to keep the federal funds rate (a key interest rate) at 4.25% to 4.50%. They'll keep watching new data and risks to decide if and when to lower rates.

China and US Set to Talk

On the tariff front, a first step has been taken between the US and China as it was announced that the two countries will meet in Switzerland this Saturday.

A Chinese Ministry Spokesperson had this to say, "On the basis of fully considering global expectations, China's interests, and the appeals of US industry and consumers, China has decided to re-engage the US." This while US Treasury Secretary Scott Bessent offered "My sense is this will be about de-escalation, we've got to de-escalate before we can move forward."

The story between the US and China is the biggest uncertain event for the economy and a major reason why the Fed decided to hold off on cutting, as so much uncertainty exists as it relates to unemployment and inflation. Hopefully, this first step will lead to more clarity and certainty for the economy and the Fed.

Solid Appetite for US Debt

Last Tuesday, the Treasury Department sold $42B in 10-year Notes, and the overall buying appetite was strong, highlighting the continued demand both here and abroad to own US debt. The solid auction also allowed mortgage rates to hold near the best levels of the week.

30-Year Mortgage Rates

The 30-year fixed rate mortgage averaged 6.76% as of May 8, 2025, unchanged from the previous week.

4.20%

The 10-year Treasury Note, a key driver of mortgage rates, has been making a series of lower lows and lower highs since touching 4.60% a few weeks ago. The 4.20% level continues to serve as a floor of yield support limiting the improvement in rates.

Bottom Line: After last month's wild volatility, May has started a bit calmer. For now, it appears the Fed is not likely to cut rates in June, unless we see some more low inflation prints and/or certainty as it relates to the tariff negotiations.

Looking Ahead

Next week it is all about inflation. The Consumer Price Index (CPI) will be released. Current rates of inflation are the lowest in nearly four years yet, prices are still climbing at paces above the Fed's 2% target. If this number comes in high, bonds and rates might suffer; the opposite is true.