Author: Eric BernsteinPublished:
The AI race, Bird Flu, The Fed Meeting, Inflation Reporting and, of course, TARIFFS all made major headlines over the last week. There was so much BIG news that it was hard to keep track of which way the market was going to move at every turn.
Luckily, all that news turned out to be a net positive for homebuyers with mortgage rates falling. The average rate on a 30-year fixed rate conventional loan inched up to 6.84% (from 6.94%). Sign up for our weekly Friday rate texts to stay in the know on where rates are week by week! It's a must for anyone planning to buy or refinance in 2025!
The AI Race
You might be asking yourself - "How does AI affect mortgage rates?" Meta, Google and most importantly, Nvidia, have all seen their valuations go to all time highs, in large part thanks to their bets on AI, and the tech industry is HIGHLY sensitive to interest rates (lower rates fuel growth - as we saw in 2020/2021 - as investors are able to place bigger bets on future tech plays). If the tech sector falters, we'd likely see rates come down with them, as tech makes up such a huge portion of the US economy (and US investments) today.
On Sunday, January 26th, Deepseek - a Chinese AI company - came out with a platform that rivals ChatGPT, was just as accurate in its responses and cost a fraction of the cost of rival models by OpenAI, Anthropic, Google, Meta and others. The news sent tech valuations plummeting as people began to wonder why these tech companies were wasting so much money. Just the week before, Zuckerberg made a splash by announcing a $60B investment in AI infrastructure that looked silly in comparison to Deepseek.
Nvidia was the big loser last week, losing over 20% of it's valuation following the news. The true cost of starting and operating an AI platform still remains to be seen - many believe China and Deepseek are leaving a lot of details - but the shakeup sent mortgage rates lower as well.
Powell and The Gang Keep Rates Steady
The Federal Reserve decided to keep the Fed Funds Rate the same, as expected. What was unexpected was something that the Fed didn't say. In the last several meetings, the Fed's made a reference that inflation is making progress toward the central bank’s inflation goal, but last week's rate decision statement that statement was intentionally removed. It's true that inflation has been somewhat hovering in the same range for the last 6 months and that has some concerned.
When Powell took the mic after the statement was released, he was able to allay some of those concerns and reiterate that inflation isn't trending up, but it certainly isn't trending down fast enough to warrant a rate cut.
Of course, the first question he received from the press was in regards to Trump's demand for lower interest rates, which was quickly dismissed by Powell.
Inflation Holds Steady
The Personal Consumption Expenditure (PCE) Index released the very next day and was fairly positive. PCE increased 2.6% on a year-over-year basis in December, 0.2 percentage point higher than the November reading and in line with the Dow Jones estimate. Chicago Fed President Austan Goolsbee said that the PCE data was “even a little better than expected.” Always nice to have a Fed member give positive feedback (even if he's the most positive one in the bunch).
I found this article to provide really great context on why this PCE index report, may not have been the best. As you can see in report, it looks like many of the inflation readings have stalled or gone up slightly in recent months, which is why the Fed is in their current wait-and-see mode.
Tariffs for Canada and Mexico
With 25% Tariffs going into effect against Canada and Mexico, the timing of a rate cut is especially up in the air today. Trump acknowledges that these tariffs may (or may not) come with some pain for Americans attached. The truth is that we need to see how it plays out. Markets seem to be reacting somewhat mixed on the first day of trading since the tariffs went into effect with mortgage rates flat and stocks down a lot.
Rate Cut Predictions
This weeks labor marketing reporting will HEAVILY influence rate cut predictions. Right now, the market is targeting June 18th! But, let's see how this week plays out.
Luckily, all that news turned out to be a net positive for homebuyers with mortgage rates falling. The average rate on a 30-year fixed rate conventional loan inched up to 6.84% (from 6.94%). Sign up for our weekly Friday rate texts to stay in the know on where rates are week by week! It's a must for anyone planning to buy or refinance in 2025!
The AI Race
You might be asking yourself - "How does AI affect mortgage rates?" Meta, Google and most importantly, Nvidia, have all seen their valuations go to all time highs, in large part thanks to their bets on AI, and the tech industry is HIGHLY sensitive to interest rates (lower rates fuel growth - as we saw in 2020/2021 - as investors are able to place bigger bets on future tech plays). If the tech sector falters, we'd likely see rates come down with them, as tech makes up such a huge portion of the US economy (and US investments) today.
On Sunday, January 26th, Deepseek - a Chinese AI company - came out with a platform that rivals ChatGPT, was just as accurate in its responses and cost a fraction of the cost of rival models by OpenAI, Anthropic, Google, Meta and others. The news sent tech valuations plummeting as people began to wonder why these tech companies were wasting so much money. Just the week before, Zuckerberg made a splash by announcing a $60B investment in AI infrastructure that looked silly in comparison to Deepseek.
Nvidia was the big loser last week, losing over 20% of it's valuation following the news. The true cost of starting and operating an AI platform still remains to be seen - many believe China and Deepseek are leaving a lot of details - but the shakeup sent mortgage rates lower as well.
Powell and The Gang Keep Rates Steady
The Federal Reserve decided to keep the Fed Funds Rate the same, as expected. What was unexpected was something that the Fed didn't say. In the last several meetings, the Fed's made a reference that inflation is making progress toward the central bank’s inflation goal, but last week's rate decision statement that statement was intentionally removed. It's true that inflation has been somewhat hovering in the same range for the last 6 months and that has some concerned.
When Powell took the mic after the statement was released, he was able to allay some of those concerns and reiterate that inflation isn't trending up, but it certainly isn't trending down fast enough to warrant a rate cut.
Of course, the first question he received from the press was in regards to Trump's demand for lower interest rates, which was quickly dismissed by Powell.
Inflation Holds Steady
The Personal Consumption Expenditure (PCE) Index released the very next day and was fairly positive. PCE increased 2.6% on a year-over-year basis in December, 0.2 percentage point higher than the November reading and in line with the Dow Jones estimate. Chicago Fed President Austan Goolsbee said that the PCE data was “even a little better than expected.” Always nice to have a Fed member give positive feedback (even if he's the most positive one in the bunch).
I found this article to provide really great context on why this PCE index report, may not have been the best. As you can see in report, it looks like many of the inflation readings have stalled or gone up slightly in recent months, which is why the Fed is in their current wait-and-see mode.
Tariffs for Canada and Mexico
With 25% Tariffs going into effect against Canada and Mexico, the timing of a rate cut is especially up in the air today. Trump acknowledges that these tariffs may (or may not) come with some pain for Americans attached. The truth is that we need to see how it plays out. Markets seem to be reacting somewhat mixed on the first day of trading since the tariffs went into effect with mortgage rates flat and stocks down a lot.
Rate Cut Predictions
This weeks labor marketing reporting will HEAVILY influence rate cut predictions. Right now, the market is targeting June 18th! But, let's see how this week plays out.
Key reporting dates this week:
Mon, 2/3: Construction spending, Auto sales, ISM manufacturing
Tues, 2/4: Job openings, Atlanta Fed President Raphael Bostic speaks on housing
Wed, 2/5: ADP employment, U.S. trade deficit
Thurs, 2/6: Initial jobless claims, U.S. productivity
Fri, 2/7: U.S. employment report, Consumer credit
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About the Author:
Eric Bernstein is the President and Co-Founder of LendFriend Mortgage, where he helps homebuyers make smarter, more confident decisions in today’s fast-moving housing market. With over a decade of experience guiding hundreds of clients—from first-time buyers to seasoned investors—Eric brings a mix of market insight, strategy, and personalized service to every mortgage transaction. Each week, Eric breaks down the housing and economic headlines that matter, giving readers a clear, no-fluff view of what’s happening and how it might impact their buying power.