What Is the Future for Interest Rates?

The Weekly Recap

Good morning and happy Friday! The Fed is split over how tariffs will impact inflation and their decision making for lowering rates. Both Manhattan rents and Bitcoin hit a new record high this week, Elon Musk started a new political party, NYC art schools are seeing application numbers hit record high, even Olivia ‘Livvy’ Dunne can get turned down by a NYC CO-OP board and a small miracle occurred, you’re now able to wear your shoes again while going through TSA.

What Is the Future of Interest Rates?

President Trump is once again pressuring Federal Reserve Chair Jerome Powell to lower interest rates, arguing that high borrowing costs are stifling economic momentum. Despite the U.S. economy showing signs of resilience, the federal funds rate remains among the highest in the developed world, giving concern that elevated rates could weigh on credit markets, real estate, and consumer spending. Trump contends that a rate cut is necessary (as much as 300bps worth of cuts) to maintain America’s competitive edge and stimulate investment, especially as other central banks around the world begin easing policy.

While the Fed maintains its independence and points to persistent inflationary pressures as justification for holding rates steady, the political heat is increasing as global comparisons place U.S. rates near the top among advanced economies.

The June 2025 Federal Reserve dot plot projects a total reduction of 50 basis points in the federal funds rate over the course of 2025, followed by a further 25 basis point cut in 2026. Despite these projected rate cuts, the Fed expects inflation to remain elevated, largely due to the perceived impact of tariffs. The Fed has Core PCE inflation projected to end 2025 at 3.0% even though it has been trending downward and has not been hit by tariffs as hard as first thought. That projection which is 30 basis points higher than the forecast made on March 19. The Fed does not anticipate a return to near 2% PCE inflation until the end of 2027 which has been a point of contention internally within the Fed as most recent minutes show Fed governors split on that time horizon.

Meanwhile, the Federal Reserve continues to reduce its balance sheet. As of June 9, 2025, it had trimmed its securities holdings by $2.3 trillion from a peak of $9 trillion reached in April 2022.

While the Fed remains cautious, there are growing signs that the path toward lower interest rates is beginning to take shape. With inflation showing gradual signs of easing and global central banks shifting toward more accommodative policies, the conditions for rate cuts are steadily aligning. The projected reductions in 2025 and 2026, although modest, signal a turning point that could provide meaningful relief to credit markets by unlocking greater investment activity which would reinvigorate sectors like real estate. As the data evolves, the outlook for a more favorable rate environment is becoming increasingly likely.

Market Performance

Here are how some other indexes and asset classes have performed as of this morning’s opening bell.

NYC Market Update

Here is a view of NYC market activity over the past week.

Mortgage Rate Update

The average 30-year fixed-rate mortgage ticked up slightly this week after five consecutive weeks of drops following a stronger than expected jobs report. Despite some affordability challenges, home purchase and refinance applications are responding to the downward movement of rates, increasing by 25% and 56%, compared to the same time last year.

News You Can Use

• Manhattan Rents Hit Another Record With More Increases to Come Bloomberg

• NYC Renters Are Scrambling for Shelter this Summer NY Post

• Bitcoin Breaks $112,000 in First as Traders Defy Tariff Angst Bloomberg

• Stocks Are Approaching Manic Levels, But Advisers Say It’s Not Too Late to Buy Bloomberg

• First Time Home Buyers Are MIA. Landlords Are the Winners Wall Street Journal

• Rent Rewards Startup Bilt Gears Up for Roughly $10B Valuation Axios

• Saudi Fund Invests Hundreds of Millions in Proposed NYC Skyscraper Wall Street Journal

• Fed Minutes Show Policymakers Split on How Tariffs Might Impact Inflation Bloomberg

• Trump Says US Interest Rate is At Least 3 Points Too High Reuters

• US Payrolls Increased by 147,000 in June, More than Expected CNBC

• NYC Real Estate Dealmakers Brace for Drag-Out Battle with Mamdani’s Socialist Policies NY Post

• NYC Art Schools See Record High Applications As Gen Zers Clambor to Enroll Gothamist

• Even Livvy Dunne is Too ‘Sparkly’ For NYC CO-OP Board NY Post

• You’ll Be Able To Wear Your Shoes Through TSA Effective Immediately USA Today

The Deep Insight

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