Federal Reserve policymakers voted to reduce the federal funds rate by 25 basis points at its October meeting on weakening jobs data, noting that they are aware of the upside risks that tariffs pose to inflation. The target rate is now 3.75% to 4%, which is in line with market expectations.
In other words, most onlookers had been anticipating a rate cut today. Mortgage lenders, in particular, had already been pricing in an October rate cut, which ushered in some of the lowest long-term mortgage rates of 2025 so far in the run-up to the Oct. 29 announcement.
However, it’s unclear whether mortgage rates have much further to fall as a direct result of Wednesday’s rate decision.
Another rate cut is still expected at the Fed’s December meeting, and, combined with an overall softening of policy direction, could result in lower mortgage rates. But the central bank’s future policy decisions aren’t set in stone. Here are two scenarios for mortgage rates for the rest of 2025 in the wake of today’s Fed meeting.
Mortgage Rates May Continue to Drop, for Several Reasons
The Federal Reserve doesn’t set mortgage rates. Long-term interest rates on home loans tend to track the yield on 10-year Treasury bonds rather than the federal funds rate. But the Fed’s policy decisions have a ripple effect on the bond market.
Look at it this way: long-term mortgage rates have already fallen to the lowest levels in over a year, and that happened before the rate cut was even made official. That’s because markets aren’t reactionary to the Fed’s announcements; instead, they act in anticipation of future Fed rate cuts, says Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
“While mortgage rates don’t always move in lockstep with the Fed’s target rate, often pricing in anticipated future cuts, the continued easing of monetary policy may well push rates even lower,” Raneri says in a statement.
Many economists, including those at the Mortgage Bankers Association, expect another rate cut at the central bank’s December meeting. The Fed itself expects an additional rate cut in 2025, according to its latest projection materials released in September.
In addition to the rate cut itself, the central bank announced that it would end its selloff of securities holdings, also known as quantitative tightening, on Dec. 1. Combined, these two actions could continue to put downward pressure on bond yields and mortgage rates that follow through the rest of the year.
[READ: Compare Current Mortgage Rates]
Why Mortgage Rates Might Not Actually Fall Much Further
Still, there’s an argument to be made that mortgage rates are already as low as they’ll go for the time being. Both the October rate cut and the end of quantitative tightening could factor into mortgage pricing, but neither came as a surprise to markets.
“As these moves were anticipated by the market, MBA does not expect any significant changes to mortgage rates as a result,” says Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association.
Additionally, there is a risk that Federal Reserve officials won’t actually cut rates in December. Fed Chair Jerome Powell said at a press conference on Wednesday that there’s still a full six weeks until the next Fed meeting, and “policy is not on a preset course.” In other words, a lot could happen in this volatile economy between now and the next rate announcement on Dec. 18.
“A further reduction in the policy rate at the December meeting is not a forgone conclusion. Far from it,” Powell said.
Just look at how the government shutdown is clouding the outlook for the labor market. The September jobs report from the Bureau of Labor Statistics was delayed as the government agency remains closed, and it’s unclear if the October jobs report will be released on Nov. 7 as expected.
“The ongoing government shutdown has complicated the picture, limiting the flow of key economic reports and adding to the uncertainty surrounding the Fed’s outlook,” says Bill Banfield, chief business officer at Rocket Companies, parent company of the lender Rocket Mortgage.
In the meantime, policymakers will need to look at secondary data sources, such as the employment report from the payroll provider ADP. Either way, Fed officials will still be tasked with shaping policy direction at upcoming meetings with or without federal jobs data.
“I hope by the December meeting we are getting a better flow of data, but we will have to do our jobs one way or the other,” says Powell.
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After Another Fed Cut, Can Mortgage Rates Move Lower? originally appeared on usnews.com
