In a divided vote, Federal Reserve policymakers have decided to cut interest rates for the third time this year, with concerns about mounting job losses outweighing fears of renewed inflation.
Fed Chair Jerome Powell joined the 9-3 majority on the Federal Open Market Committee (FOMC) to vote for the quarter-point rate cut at Wednesday’s meeting in Washington, DC. Powell is due to deliver remarks at 2:30 p.m. ET that could shed more light on the split decision.
Voting against the cut were Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee, who have voiced concerns that lower rates will reignite the smoldering embers of inflation. As well, Fed Gov. Stephen Miran voted in favor of a larger half-point cut.
Meanwhile, the quarterly summary of projections released with the rate decision only underscores the growing differences of opinion on the FOMC, with six officials in total calling for no rate change at this meeting.
“On balance, the data were sufficient for a majority of the committee to support a rate cut, but the vote highlighted the wide variety of perspectives on the appropriate policy decision,” says Realtor.com® Chief Economist Danielle Hale.
Wednesday’s decision takes the Fed’s benchmark overnight rate down to a range of 3.5% to 3.75%, marking the third consecutive cut since September. It marks the lowest federal funds rate since 2022, when the central bank began hiking aggressively to fight runaway inflation.
The Fed policy rate is now 1.75 percentage points lower than in September 2024, but mortgage rates have not experienced commensurate declines. In fact, last week’s average mortgage rate of 6.19% remains slightly higher than the two-year low reached in September 2024.
That’s because the Fed controls only short-term rates used for overnight lending between commercial banks, while longer-term rates such as mortgages are set by the free market, hinging on investor expectations about future inflation and monetary policy.
Mortgage rates have climbed slightly higher between the October and December Fed meetings, as markets assessed the outspoken and sometimes conflicting outlooks issued by FOMC members.
Despite the upward drift, mortgage rates have remained close to their lowest level in more than a year, potentially unlocking affordability for homebuyers on the edge of being able to purchase a home.
The Realtor.com economic research team’s national housing forecast for 2026 anticipates that mortgage rates will largely hover around current levels throughout next year.
“While this may be disappointing to buyers hoping for even lower rates, mortgage rates are expected to be low enough to offset price gains, causing the monthly cost of buying a home to drop in 2026 for the first time since 2020 even as home prices rise,” says Hale. “Coupled with rising incomes, affordability will improve.”
Developing story, more to follow.
