2026 Historical Retrospective: Looking back at the May 7, 2025 Federal Reserve decision explains the “plateau” period that frustrated many KC homeowners. This was a critical moment where “sticky” inflation delayed the rate relief that eventually arrived in late 2025.
On May 7, 2025, the Federal Reserve’s Federal Open Market Committee (FOMC) announced its decision to maintain the federal funds rate at 4.25% to 4.5%. This marked the third consecutive meeting with no change, signaling a prolonged “wait-and-see” period during The Transition Year. The Fed’s cautious approach was driven by persistent core inflation and the early ripples of new trade policies.
Understanding the Federal Reserve’s Decision
The Fed’s choice to hold rates steady was a response to core inflation (PCE) hovering at 2.6%—still above the 2% target. Chair Jerome Powell emphasized “policy restraint” until the Committee gained confidence in a sustainable downward trajectory. A major factor was the “Tariff Variable,” as the Fed chose to observe if supply chain costs would trigger a second wave of inflation. This stance pushed market expectations for cuts further into the year, as we now reflect on in our 2026 Mortgage Rate Forecast.
How the Fed’s Decision Affected Mortgage Rates
While the Fed doesn’t set mortgage rates, its hold kept the 10-year Treasury yield elevated at 4.36%. Consequently, 30-year fixed mortgage rates remained in the mid-to-upper 6% range throughout May 2025. The bond market maintained a “risk premium,” keeping rates higher than short-term Fed funds might suggest. For KC buyers, the window for sub-6% rates remained firmly closed during this period.
Impact on Kansas City’s Housing Market
The May 7 decision had three distinct impacts on the local metro area:
- The Affordability Squeeze: By May 8, 2025, Current Mortgage Rates in Kansas City averaged 6.76%. This sustained the pressure on monthly carry costs for homes in Overland Park and Lee’s Summit.
- The “Lock-In” Effect: With rates near 7%, homeowners with 3% mortgages had little incentive to move, keeping inventory at historic lows across the Northland.
- Refinancing Delays: Homeowners who bought in late 2023 were forced to wait longer for a mortgage refinance opportunity, which didn’t truly emerge until the September pivot.
Strategy for 2026 Homebuyers
History shows that the Fed is rarely as fast as the market hopes. To succeed in the current KC housing market:
- Prioritize Credit Health: A score above 740 remains the best way to secure a lower tier, regardless of Fed action.
- Rate Protection: Use a mortgage rate lock to insulate yourself from the volatility that defined much of 2025.
- Run Your Numbers: Use our Affordability Calculator to see how 2026’s stabilized rates compare to the 2025 peaks.
Historical Meeting Resources: 2025 Timeline
Historical Meeting Resources: 2025 Analysis
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December 2025: The “Holiday Pivot” & 2026 Rate Forecast – The Fed concludes the year with a final 0.25% cut and a roadmap for a “soft landing” in 2026.
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October 2025: Labor Market Focus & The End of Quantitative Tightening – A second consecutive 0.25% cut as the Fed shifts priority to stabilizing the job market.
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September 2025: The First Major Rate Pivot of the Post-Inflation Era – The historic move that ended the “Higher for Longer” cycle and revitalized the KC housing market.
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July 2025: The “Summer Hold” & Sticky Inflation Data – Why the Fed paused mid-summer to evaluate the impact of new trade tariffs on consumer prices.
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June 2025: Mid-Year Projections & The “Dot Plot” Revision – Analysis of the Fed’s updated economic projections and what they signaled for fall mortgage rates.
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May 2025: Wait-and-See Approach for Core Services – The Committee maintains the funds rate at 4.25%–4.50% while monitoring cooling rent prices.
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March 2025: Volatility & The “Last Mile” of the Inflation Fight – Market reactions to the Fed’s warning that the final push to 2.0% inflation would be the hardest.
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January 2025: Setting the Stage for a Transition Year – The first meeting of 2025 emphasized balance as new regional bank presidents joined the rotation.