The Federal Open Market Committee, which is the rate-setting body of the Federal Reserve, voted to cut interest rates by a quarter-point at its December 2025 meeting. While the reduction of the short-term federal funds rate itself won’t directly move long-term mortgage rates, last week’s FOMC meeting does have implications for mortgage pricing and the housing market at large.
The 30-year mortgage rate tends to track the yield on the 10-year Treasury bond, so let’s look to the bond market to see how investors reacted to the Fed news. Treasury yields fell slightly after the meeting, with Fed Chair Jerome Powell shifting to a more dovish tone amid concerns about the labor market.
[SEE: Current Mortgage Refinance Rates]
While the central bank has a dual mandate to promote maximum employment and stable price growth, the latter half of that goal has been difficult to achieve given economic policy under the Trump administration — specifically, tariffs. In fact, Powell directly tied higher inflation readings for goods to tariffs in the post-meeting press conference on Dec. 10.
With more of a focus on employment than inflation, the Fed may begin loosening its grip on monetary policy. That shift from Fed officials helped spur lower interest rates on mortgages in the aftermath of the meeting, says Jeff DerGurahian, chief investment officer and head economist at the mortgage lender loanDepot.
“The announcement of asset purchases, beginning Dec. 12 with $40 billion in Treasury bill purchases, and a somewhat less hawkish tone in the post-meeting press conference helped fuel the rate improvement and pave the way for potentially lower mortgage rates ahead,” DerGurahian says in a statement.
Powell: Fed Can’t Fix Housing Market
Lower mortgage rates are welcome news for Americans who want to buy a home or refinance their mortgages, but rates aren’t the only factor affecting housing affordability. Housing prices are the other big part that will impact monthly payments and how much house a borrower can afford.
Controlling housing prices is not within the central bank’s purview. Price growth in recent years has reflected a historic undersupply of housing, especially when it comes to building starter homes.
“We can raise and lower interest rates, but we don’t really have the tools to address, you know, a secular housing shortage — a structural housing shortage,” Powell told reporters at the post-meeting press conference.
“The housing market faces some really significant challenges, and I don’t know that, you know, a 25-basis point decline in the federal funds rate is going to make much of a difference for people,” says Powell.
Thankfully, the housing market is in better balance than during the pandemic, when record-low mortgage rates spurred an increase in demand that made it challenging for buyers to compete. But while price growth isn’t expected to continue at the double-digit pace observed during that time period, most economists forecast that prices won’t decrease meaningfully in the next several years.
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Mortgage Rates Stable After Fed Rate Cut originally appeared on usnews.com
