“You know from economic theory it’s pretty clear what the direction is going to be between the impact of tariffs on imports to the US, and retaliatory tariffs from our trading partners,” Fratantoni said. “Global economic growth is going to slow, prices are going to increase, and so that will show up as, at least, a temporary increase in inflation.”
An increase in inflation, combined with price increases resulting from the new tariffs, could constrict the average household’s budget. Fratantoni said it could also lead to other macroeconomic effects that impact the mortgage market, including potentially slower job growth, higher unemployment, and slower wage growth.
“On the inflation side, we’ve been living with that for the past couple of years,” Fratantoni said. “Everybody’s dealing with the challenges with the cost-of-living and prices of everything going up. The worries are that those prices are going to exceed wage growth and then make it, on an inflation-adjusted basis, tougher for a typical household to get by.”
Could lower rates help keep the market moving?
Fratantoni said that one positive aspect that could result from the new tariffs is lower interest rates. With the Federal Reserve noting that it will cut rates three times in 2025 instead of the originally projected twice, mortgage rates might continue a steady decline.
The Federal Reserve will now cut interest rates three times in 2025 with chances of a US recession rising to 35%, according to Goldman Sachs.https://t.co/XCTuoZrx7n
— Mortgage Professional America Magazine (@MPAMagazineUS) March 31, 2025
Ten-year Treasury rates, Fratantoni noted, have dropped since January, and mortgage rates have followed suit.