Mortgage rates could be set to inch upwards as traders pushed back expectations of Fed rate cuts following the 90-day tariff pause
Mortgage rates could face upward pressure after the 10-year Treasury yield jumped Monday, following a US-China deal to pause tariffs that cooled expectations for Federal Reserve interest rate cuts.
That yield, a key benchmark for US mortgage rates, climbed seven basis points after Washington and Beijing agreed to a 90-day tariff truce, leading traders to lower the odds of an imminent central bank rate reduction.
US officials said massive charges on most Chinese imports would be reduced from 145% to 30% by Wednesday (May 14), while China will clip its counter-tariffs on US goods to 10% from 130%.
The détente, which gives both sides three months to agree a wider trade deal, dramatically lowered the chances of a sharp US economic downturn and boosted confidence on Wall Street, with S&P futures posting a gain of more than 3% on the back of the news.
Fed unlikely to cut rates soon as economic outlook brightens
Guy Miller, Zurich Insurance Co.’s chief market strategist, told Bloomberg the agreement – which comes just over a month after Trump launched his global tariff war in the White House’s Rose Garden at the beginning of April – could mark a turning point for the US economy in 2025. “The risk of a deep and protracted US recession has gone,” he said.
That means there’s little chance of the Fed, which kept interest rates unchanged last week, reversing course on its current wait-and-see approach to rate policy.
While Trump has frequently called for rate cuts in recent month, Fed chair Jerome Powell has maintained that the central bank needs more time to gauge how Washington’s trade policies impact the US economy.
That approach is part of the reason mortgage rates have remained stubbornly high in 2025. The average 30-year fixed-rate mortgage clocked in at 6.76% as of last Thursday (May 8), according to Freddie Mac’s Primary Mortgage Market Survey.
Still, rates remain notably lower than at the same time in 2025. A year ago, that same 30-year fixed option had an average rate of 7.09%, while the 15-year fixed currently averages 5.89% compared to 6.38% at the same time last year.
Trade truce lowers chances of big debt selloff by China
The tariff pause will also boost hopes that Americans will be spared the impact of higher costs at the till – and allay some fears that a spike in US mortgage rates could be on the way, even despite Monday’s slight increase.
That’s because China is a prominent holder of US Treasury debt and mortgage-backed securities, and escalating tensions with the US had sparked concerns it could begin a wide selloff and potentially drive up yields.
For now, that prospect appears to have been shelved – at least until the end of the 90-day pause. But US Treasury Secretary Scott Bessent has also left an extension of that truce on the table.
“Just like with all our other trading partners, as long as there is good faith effort, engagement and constructive dialog, then we will keep moving forward,” he said Monday.
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