Quick Read
- The Federal Reserve cut short-term rates by 0.25% to 3.75%-4% but Chair Powell signaled a December rate cut is uncertain, prompting a rise in mortgage rates.
- Yields on 10-year Treasury notes rose 7 basis points, and 30-year fixed mortgage rates surged 14 basis points, reflecting investor skepticism about future easing.
- Inflation remains above the Fed’s 2% goal, with the September Consumer Price Index rising to 3.01% year-over-year, complicating the Fed’s policy outlook.
- Mortgage Bankers Association anticipates average mortgage rates near 6.4% in 2026; Fannie Mae forecasts rates declining to around 6% by Q3 2026.
An AI tool created this summary, which was based on the text of the article and checked by an editor.
After the Federal Reserve approved the second rate cut of the year, mortgage rates moved in the opposite direction as investors who fund most home loans worry about inflation.
Federal Reserve policymakers cut short-term interest rates Wednesday for the second time this year, but a warning from Fed Chair Jerome Powell that another rate cut in December is not a done deal put upward pressure on mortgage rates.
The Federal Open Market Committee’s 10-2 vote to bring the federal funds overnight rate down by 1/4 of a percentage point, to a target of 3 3/4 to 4 percent, was widely expected — as was a separate announcement that the Fed will stop trimming its massive holdings of government debt in December.
But the Fed doesn’t have direct control over mortgage rates. Bond market investors who fund most home loans hedged their bets Wednesday on the prospects for a December rate cut and additional easing next year, sending mortgage rates up.
TAKE THE INMAN INTEL SURVEY FOR OCTOBER
Yields on 10-year Treasury notes, a barometer for mortgage rates, surged 7 basis points Wednesday following Powell’s remarks. Rates on 30-year fixed-rate mortgages spiked 14 basis points Wednesday, according to lender data tracked by Mortgage News Daily. A basis point is one hundredth of a percentage point.
“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said. “A further reduction in the policy rate at the December meeting is not a foregone conclusion — far from it. Policy is not on a preset course.”
As was in the case in September, Federal Reserve Governor Stephen I. Miran, a recent Trump appointee, held out for a bigger rate cut of 1/2 a percentage point. But another dissenting member of the rate-setting Federal Open Market Committee, Jeffrey Schmid, argued that no rate cut was needed this month.
The CME FedWatch tool, which tracks futures markets to predict the odds of future Fed moves, showed investors on Wednesday saw a 57 percent chance of another rate cut at the central bank’s next meeting on Dec. 10, down from a 90 percent chance on Tuesday.
Powell said that while inflation has “eased significantly” from highs seen during the pandemic, it’s moved away from the Fed’s long-term goal of 2 percent annual inflation.
Friday’s reading of the Consumer Price Index suggests that inflation ticked up to 2.8 percent annually in September, Powell said, as measured by Fed’s preferred gauge of inflation, the Personal Consumption Expenditures (PCE) index.
The government shutdown that began Oct. 1 means Fed policymakers may be missing some key jobs data when they meet next in December.
“Near-real time data, including jobless claims, suggest the federal government shutdown has had a negligible impact on the economy so far,” forecasters at Pantheon Macroeconomics said in their Oct. 29 U.S. Economic Monitor. “Financial conditions remain loose, despite the flaring up of concerns about private credit lending standards.”
Inflation on the rise again
The latest reading of the Consumer Price Index showed prices rose 3.01 percent from a year ago in September, up from 2.92 percent in August.
Core CPI, which excludes volatile food and energy prices, dropped 9 basis points to 3.02 percent.
Rates on 30-year fixed-rate mortgages had hit a 2025 low on Tuesday, dropping to 6.12 percent, according to lender data tracked by Optimal Blue.
Last year, 30-year fixed-rate mortgage rates bottomed out at 6.03 percent on Sept. 17, but climbed back above 7 percent when the Fed started cutting short-term rates only to see inflation flare up again.
The Fed trimmed the federal funds rate by a full percentage point at the end of 2024, but mortgage rates went up by an equal amount as investors who fund most home loans demanded higher yields.
Mortgage rates are determined largely by investor demand for mortgage-backed securities, and those investors have already priced in expectations for future Fed rate cuts.
While Fed policymakers also confirmed Wednesday they will end “quantitative tightening” of balance sheet runoffs on Dec. 1, that move and today’s rate cut were anticipated by the market, Mortgage Bankers Association Chief Economist Mike Fratantoni said in a statement.
While MBA economists still expect the Fed to cut short-term rates by 1/4 of a percentage point in December and one more time in the first quarter of 2026, they’re forecasting mortgage rates will average 6.4 percent next year.
Economists at Fannie Mae are forecasting that rates on 30-year fixed-rate mortgages will continue to drop to 6 percent in Q2 and Q3 2026 and hit 5.9 percent in the final three months of next year.
Unemployment hit 4.3 percent in August
Unemployment has been creeping up as uncertainty over tariffs has slowed hiring, with the unemployment rate hitting 4.3 percent in August and 7.384 million Americans out of work.
“Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue to decline,” Powell said. “In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months.”
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