The 25 basis point cut was confirmed by a vote of 10-2. The dissenting voices came from Fed Governor Stephen Miran, who demanded a 50 basis point cut, and Kansas City Fed President Jeffrey Schmid, who voted for unchanged policy rates.
The Federal Open Market Committee (FOMC) also confirmed it would end its quantitative tightening (QT) program, a rumored development in recent weeks.
In one statementThe FOMC said that starting in December it will roll over at auction the amount of principal payments on the Fed’s holdings of Treasury bonds maturing in October and November above a monthly cap of $5 billion.
In addition, effective December 1, it announced that it will begin reinvesting the amount of principal payments from the central bank’s holdings of government bonds and mortgage-backed securities (MBS) received in October and November, which exceeds a limit of $35 billion per month. These funds will be converted into government bonds to “roughly match” the maturity composition of outstanding government bonds.
Economists say the federal government shutdown has limited access to employment data and has delayed the release of some inflation numbers. Friday has the US Bureau of Labor Statistics reported that inflation reached its highest level of the year in September, rising 3% year-on-year and 0.3% month-on-month, compared to 0.4% monthly growth in August.
“The government shutdown has limited access to new employment data, limiting policymakers’ visibility into the underlying health of the labor market,” said Sam Williamson, senior economist at First Americansaid a statement. “If the shutdown continues, it would further cloud the outlook and complicate the Committee’s decision-making, even as market expectations remain confident of another cut in December.”
According to Williamson, Wednesday’s decision marks “another step toward a more neutral policy stance as the Fed navigates a landscape clouded by uncertainty.”
Where will mortgage rates go?
The Fed’s interest rate cut comes as 10-year Treasury yields are trading lower, which is also driving down mortgage rates. HousingWire‘s Mortgage Rates Center on Tuesday afternoon showed 30-year conforming loan rates averaging 6.28% – down 5 basis points from the week before.
Michele Raneri, vice president and head of U.S. research and consulting at TransUnionsaid that mortgage rates in particular have responded quickly to the Fed’s moves.
“While mortgage rates do not always move in line with the Fed’s interest rate target – often pricing in expected future cuts, continued monetary policy easing could potentially push rates down even further,” Raneri said in a statement.
“This presents a tangible opportunity for consumers. For example, a first-time homebuyer taking out a $350,000 mortgage at a 6.75% interest rate could potentially see monthly payments drop by nearly $150 from peak highs, with another reduction of 25 basis points.”
Against this backdrop, Charles Goodwin, vice president and head of bridge and DSCR lending, has joined Kiavisaid: “We expect mortgage rates to remain relatively flat, with only a slight downward trend through 2026.”
“While the Fed moves to lower short-term rates, long-term rates are likely to remain at current levels. For rates to move significantly lower, we would need to see either a sharp decline in 10-year Treasury yields or a permanent collapse in inflation pressures, which would force the Fed to issue aggressive, sustained rate cuts to drive down longer-term bond yields.”
Interest rate policy remains central to the equation, but changes in the Fed’s balance sheet can also affect mortgage rates. A halt to quantitative tightening (QT) could restore a steady source of demand in government bond markets, pushing long-term interest rates lower.
“With mortgage rates already hovering just above three-year lows, even a modest dip could further increase affordability and boost housing demand,” Williamson said.
Consequences for the industry
Scott Ferrell, executive vice president and director of capital markets at AnnieMac Mortgagesaid that if rates fall, the lender is prepared to “hire quickly if we need to add capacity.”
Nash Paradise, Sales Director at Umortgagesaid interest rates “are down nearly a full percent from all-time highs this year.”
“We’ve spent so much of the last three years on wishful thinking, hoping and assuming, ‘Well, interest rates can’t stay high for that long, right? They’ve got to come down,'” Paradise said. “But there wasn’t a lot of data to support how they would come down. I feel like now, for the first time since 2022, we actually have the pieces of the puzzle.”
Paradise added that he expects some consolidation to occur as companies are willing to spend money to position themselves and gain market share as competition increases.
Editor’s note: This is a developing story and will be updated with further information after Fed Chairman Jerome Powell’s press conference on Wednesday.
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