Redfin Economists’ Weekly Take: Homebuyers Wait to See How Mortgage Rates Move When Fed Cuts
Last Week In A Nutshell
Rates fell after a spike in unemployment insurance claims overshadowed inflation data that was mostly benign, further propelling fears about the labor market. The Department of Labor later revealed, however, that the spike in UI claims was actually driven by fraudulent claims in Texas.
Upcoming Attractions
Fed meeting (Wednesday): With a 25 bps rate cut more than fully priced in, mortgage rates will not drop when the Fed cuts on Wednesday. How rates move after the meeting will depend on how many future rate cuts are projected in the “dot plot” and Chair Powell’s rhetoric in the press conference. Markets have priced in two more 25 bps rate cuts this year followed by roughly three more in 2026. But the Fed is only expected to show one additional 25 bps cuts in 2025 in their projection followed by two more in 2026.
Economic data:
NY Empire State Manufacturing Index – Usually not a headline, but this morning’s data is driving rates down slightly. The overall index decreased unexpectedly by 8.7 in September against expectations for an increase. The components were all weak with declines in new order, shipments, employment, and the six-months-ahead business conditions index.
Retail sales (Tuesday) – The monthly increase in core retail sales is expected to slow to 0.4% from 0.5% last month
Industrial production (Tuesday) – Expected to decline 0.1%, similar to last month’s reading.
Unemployment insurance claims (Thursday) – Expected to retreat back to 240,000, similar to the level before last week’s erroneous data showing a spike to 263,000.
Housing data:
NAHB housing market index (Tuesday)
Housing starts and building permits (Wednesday) – Starts are expected to decline while permits are expected to remain flat.
Last Week’s Highlights
PPI/CPI – Overall, the various pieces of inflation data suggest that inflation remains firm and increasing slightly, but not as much as feared. For Fed policy, what matters is the components of CPI and PPI that trickle down to core PCE, their preferred inflation gauge. While overall core PPI came in unexpectedly negative, the PCE-relevant components were much higher. For core CPI, on the other hand, while the overall number came in higher, the components that receive a lot of weight in PCE were lower. So, overall, core PCE is expected to come in 0.20% month-over-month (down from 0.27% last month) and 2.9% year-over-year (same as before).
Unemployment insurance claims – Rates fell last week when the Department of Labor reported that initial unemployment insurance claims, which had been resiliently low up until then, spiked to a four-year high. It immediately looked suspicious, as the increase was concentrated in Texas, but it wasn’t until a few days later that officials announced that the spike was not real. It was the result of fraudulent claims. This means that the economic data is still showing that employers are increasingly reluctant to hire, but they are not increasingly laying people off yet.
Benchmark revisions for payrolls – The BLS announced 911,000 fewer jobs were created between April 2024 and March 2025 than previously estimated, but this revision itself is a preliminary estimate of the final revision. Taken at face value, the revision would imply that the underlying rate of job creation is about half the breakeven rate, which would result in a higher unemployment rate. However, this preliminary estimate of the revision is very likely to be overstated, meaning that while the labor market has likely been worse than the data showed, the difference between reality and the previously reported data is not as wide as 911,000 jobs.
UMich Consumer Sentiment – Preliminary estimates of consumer sentiment for the U.S. dropped to 55.4 in September 2025, down from 58.2 in August and below market expectations of 58. This leaves sentiment at its lowest level since May. Importantly, the five-year inflation expectations measure increased for the second straight month to 3.9% from 3.5%. If consumers start to expect higher inflation (in Fed speak, “expectations become unachored”), then the Fed might have to stop ignoring higher tariff-driven inflation when making monetary policy decisions because inflation would become more persistent.
Diving a Little Deeper
Fed Meeting and Housing Market Impact – Rates have been dropping for the past month and a half as bond markets increasingly priced in expectations of a Fed rate cut. But demand in the housing market has not increased. If anything, there were fewer active buyers in August than July. We saw the same dynamic last summer ahead of the larger than usual 50 bps rate cut at the September 2024 Fed meeting. Consumers saw the press about an expected Fed rate cut and decided to sit out the market until the rate cut came through, expecting lower mortgage rates to result. Instead, rates started increasing after the meeting and kept increasing as economic data turned more positive. What happens to rates immediately after the meeting this year will depend on the Fed’s projections for future cuts and, in the longer term, how economic data comes in. But it seems likely that some buyers will jump in immediately after the Fed rate cut news cycle hits.
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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