The era of interest rates at two-decade highs may be drawing to a close, with Federal Reserve Chair Jerome Powell hinting at possible cuts as early as September. But for hopeful homebuyers eyeing cheaper mortgages, the path forward is still unclear.

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Last week, at the central bank’s annual gathering in Jackson Hole, Wyoming, Powell struck a cautiously optimistic tone. “The time has come for policy to adjust,” he said, confirming the Fed’s intention to begin easing its monetary stance.

The shift departs from the aggressive rate-hiking campaign of the past two years, designed to tame runaway inflation. Now, with price increases cooling, the Fed faces the challenge of supporting economic growth without reigniting inflationary pressures.

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While Powell’s remarks clearly signaled that rate cuts are on the horizon, the timing and pace remain uncertain. “The direction of travel is clear,” he said, “but the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The key variable in this is the labor market.

The Sept. 6 jobs report looms large on the Fed’s radar. A softer-than-expected report could push the central bank toward a more aggressive 50-basis point cut at its Sept. 18 meeting. A resilient job market, however, might prompt a more measured approach.

That uncertainty has left financial markets in a state of cautious optimism. Futures markets are currently split, with a two-thirds probability of a standard 25-basis point cut in September and a one-third chance of a bolder 50-basis point reduction.

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For potential homebuyers, that translates into a waiting game. While mortgage rates edged down in response to Powell’s remarks, steeper drops may not materialize immediately.

“Additional weak labor market data leading to a series of larger than 25 bps cuts will mean that mortgage rates will fall through the end of the year,” noted Chen Zhao, economics team lead at Redfin. “But a stable, or even falling, unemployment rate will allow the Fed to cut 25 bps at a time and may lead to mortgage rates ticking up a bit from today’s lows through the end of the year.”

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The Fed’s evolving stance reflects a growing confidence in its battle against inflation. Powell acknowledged that inflation, measured by the Fed’s preferred gauge, has fallen to 2.5%.

“My confidence has grown that inflation is on a sustainable path back to 2%,” he said during his speech, hinting at the possibility of achieving the much sought-after “soft landing.”

The Fed chair also said policymakers had miscalculated the inflationary threat when it emerged in 2020. “The good ship Transitory was a crowded one,” he said, referring to the widespread initial belief that price pressures would be short-lived.

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As the Fed navigates the next phase, the housing market grapples with affordability challenges, even as the prospect of lower rates offers some hope.

For now, investors will turn to the upcoming jobs report.