The Federal Reserve cut interest rates by a quarter point on Wednesday, as it was widely expected to, lowering borrowing costs for the third time since September.
The latest cut brings the target federal funds rate to a range between 3.5 percent and 3.75 percent, the lowest level in three years. This rate affects many consumer lending and savings rates throughout the country, either directly or indirectly, including mortgage rates.
This is why the Fed’s cut this week, according to estate agency Bright MLS chief economist Lisa Sturtevant, is likely to “translate into lower short-term borrowing costs” for Americans, she said in a statement shared with Newsweek.
“However, potential homebuyers waiting for lower mortgage rates are going to be disappointed. In fact, rates could actually increase in the coming weeks,” she added.
What To Make of the Fed’s Decision?
Wednesday’s decision came after a fractious meeting that saw division within the Federal Reserve Board over how to tackle the growing problems within the U.S. economy—including a weakening job market and high inflation.
The Fed’s vote on cutting interest rates or not is usually unanimous—but on Wednesday the decision to lower rates came in a nine-to-three vote, highlighting uncertainty within the central bank over how the U.S. economy will react to potential shocks in the coming months.
The one to lower rates is a tricky decision: done too quickly, it could lead to a surge in inflation. Avoided altogether, it could leave the economy stalling.
“While the cut was expected, Fed Chair Jerome Powell’s comments revealed a shift in focus toward labor market weakness, noting that the economy may be losing roughly 20,000 jobs per month after revisions,” mortgage lender loanDepot’s chief investment officer and head economist Jeff DerGurahian said in a statement shared with Newsweek.
Inflation concerns tied to the White House’s tariffs, which Powell had pointed to as a reason to potentially pause the Fed’s rate-cutting campaign after the first cuts this fall, are expected to fade by the first quarter of 2026, DerGurahian said. This would in turn reduce pressure on prices and set “the stage for further easing if employment softens,” he said.
President Donald Trump, who for months had been criticizing the Fed for not lowering rates earlier this year, was not happy on Wednesday either. The cut, he said at a roundtable at the White House, should have been “at least doubled.”
“We should have the lowest rates in the world,” Trump said.
Others blame Trump for putting the Fed into a tough spot in the first place.
“Trump’s reckless handling of the economy has backed the Fed into a corner—stuck between rising costs and a weakening job market, it has no choice but to try and offer what little relief they can to consumers via rate cuts,” Alex Jacquez, chief of policy and advocacy at Groundwork Collaborative, a think tank, said in a statement shared with Newsweek.
“But the Fed cannot undo the damage created by Trump’s chaos economy, and working families are heading into the holidays feeling stretched, stressed, and far from jolly.”
What Does This Mean for Mortgages?
According to Sturtevant, “rates could move higher through the end of the year as the latest meeting of the Federal Open Market Committee reveals a divide in opinions on cutting rates.”
“In addition, [there are] concerns about the potential for inflation to reassert itself, which could also push mortgage rates higher,” she added.
As of the week ending on December 4, the average 30-year fixed-rate mortgage was 6.19 percent, down from 6.23 percent a week earlier and from 6.69 percent a year earlier, according to Freddie Mac.
While there was a dip, rates have not fallen significantly in anticipation of the widely expected Fed decision to cut rates on Wednesday. New data are expected on Thursday, December 11.
“It is possible that we could see mortgage rates increase through the end of the year as a result of mixed opinions on future rate cuts among members of the Federal Open Market Committee (FOMC),” Sturtevant said. “Concerns about the potential for inflation to rebound in 2026 could also lead to higher mortgage rates in the weeks or months ahead.”
Realtor.com senior economist Anthony Smith said in a statement shared with Newsweek that he also believes that the Fed’s policy decision on Wednesday will not be, by itself, “a direct catalyst for lower mortgage rates.”
“Instead, markets are focused on the Fed’s updated economic projections and the growing division among policymakers. Current conditions suggest that FOMC members expect rates may now be near a neutral level, future cuts could require more evidence of economic cooling,” he added. “As a result, mortgage rates may remain range-bound in the low 6 percent area rather than falling sharply.”
Even if mortgage rates came down right now, Sturtevant said, it is unclear whether it would help U.S. homebuyers get off the sidelines of the market, where they have been pushed by ongoing affordability issues including high home prices, property taxes, and homeowners’ insurance premiums.
“It appears as though there are other things weighing on the minds of prospective homebuyers,” Sturtevant said. “Mortgage rates are a half percentage point lower than last year, but sales are still tracking below where they were in 2024. Economic uncertainty is holding buyers and sellers back,” she added.
“Housing demand has been sluggish despite recent drops in mortgage rates and an increase in inventory, which suggests that homebuyers are thinking about more than just borrowing costs and supply,” Sturtevant said.
“Expect 2025 home sales to come in at about 2024 levels with a seasonally slow December. Economic uncertainty is going to be a key factor in the housing market as we head into 2026.”
What Comes Next?
It is unclear whether the Fed will continue cutting rates next year, as it is not evident how the U.S. economy will behave in the coming months.
“With the meeting behind us, markets will turn their attention to upcoming labor data,” DerGurahian said.
“The path to lower mortgage rates heading into 2026 may be paved if the data backs up the Fed’s expectations for continued weaker labor and under-control inflation, potentially breaking below the holding pattern we’ve seen in recent months,” he added.
Sturtevant expects mortgage rates to ease “somewhat” in 2026, though Bright MLS forecasts for rates to remain above 6 percent through the end of next year.
“Slightly lower rates and slower [home] price growth should improve affordability a little, which could bring more buyers into the market,” she said. “Next year is still going to be a transition year, however, and homebuyers and sellers are still going to be cautious.”
Smith and Realtor.com anticipate that mortgage rates will remain broadly in line with current levels next year.
“While this is unlikely to deliver the sharp relief some buyers are hoping for, rates are expected to be low enough to help counterbalance continued, but modest, home price growth,” Smith said.
“This dynamic is expected to lower the typical monthly cost of homeownership in 2026 for the first time since 2020, with affordability improving as rising incomes bring the share of earnings needed to purchase a median-priced home back below the 30 percent threshold.”