Federal Reserve policymakers have put further interest rate reductions on hold following three consecutive cuts, defying pressure from President Donald Trump to reduce borrowing costs.
Fed Chair Jerome Powell joined the 10-2 majority on the Federal Open Market Committee to vote in favor of leaving the federal funds rate unchanged at Wednesday’s meeting in Washington, DC.
The decision signals the panel’s confidence in the economy, with a statement from the FOMC noting that “economic activity has been expanding at a solid pace” while “the unemployment rate has shown some signs of stabilization.”
Dissenting were Fed Govs. Stephen Miran and Chris Waller, who both voted in favor of a quarter-point rate cut. Both officials have argued that rates should be lower to avoid unnecessarily restricting growth.
The decision leaves Fed’s benchmark overnight rate unchanged in a range of 3.5% to 3.75%, which is 75 basis points lower than in early September, before three consecutive quarter-point cuts.
Over the same period, mortgage rates have eased, falling from 6.5% in early September to 6.09% last week, close to a three-year low, according to Freddie Mac.
The Fed does not directly control mortgage rates, but rather sets the short-term interest rate for lending between commercial banks. But expectations about Fed policy are one factor that influences mortgage rates, among others.
Even though the Fed was widely expected to leave its benchmark rate unchanged in January, mortgage rates have gyrated in recent weeks, following headlines about Trump’s plan to purchase $200 billion in mortgage backed securities, and concerns over new tariffs and geopolitical risk.
“The past 10 days are a textbook reminder that the Fed’s influence over mortgage rates is limited,” says Realtor.com Senior Economist Jake Krimmel. “Expectations around the Fed’s policy rate haven’t changed and yet mortgage rates moved sharply down and then back up.”
The Fed uses higher interest rates to fight inflation, and lower rates to stimulate the job market, in line with the central bank’s dual mandate of price stability and maximum employment.
Financial markets don’t expect the Fed to resume rate cuts until July, although some forecasters including J.P. Morgan analysts believe there may be no further change to interest rates at all in 2026.
The new rate decision comes at a time of extraordinary political turmoil for the Fed, with Trump ramping up his pressure campaign for lower interest rates.
Powell in recent weeks revealed that he is under criminal investigation by Trump’s Justice Department, calling the probe an intimidation tactic to force the Fed to cut rates.
Meanwhile, the Supreme Court recently heard arguments in Trump’s attempt to fire Fed Gov. Lisa Cook over allegations of mortgage fraud, with even conservative justices sharply questioning the administration’s handling of the matter.
Powell for his part has vowed to carry out his duties “without political fear or favor” and to make interest rate decisions based solely on the Fed’s dual mandate.
“Public service sometimes requires standing firm in the face of threats,” he said in a recent statement.
What Fed rate pause means for housing market
While affordability challenges continue to weigh heavily on the housing market, top agents and brokers say they don’t expect the Fed’s latest decision to have a major negative impact on buyer demand.
Ivan Sher, a luxury real estate advisor in Las Vegas and founder of IS LUXURY, points out that mortgage rates remain near multi-year lows, and predicts the Fed’s pause in rate cuts will shake some buyers out of their “wait and see” mindset.
“With no cut coming, more buyers stop waiting and act,” he tells Realtor.com. “Demand stays active, but they’ll stay price sensitive. The homes that are well-priced will see faster offers and more competition.”
Sher predicts 2026 will bring normalization to the housing market, after three straight years of weak sales, with transactions hovering at multi-decade lows.
“Activity is already improving. Homes that sat are going under contract,” he says. “As transactions increase, prices tend to rise, and the key question becomes who captures the equity: early buyers usually do; later buyers often pay for that clarity.”
Rayni Williams, founder of The Beverly Hills Estates, says that while the Fed’s recent rate cuts in the fall helped boost consumer confidence, she doesn’t believe a pause now will have much impact on the market.
“Rates are not at an all-time high, and with strong banking relationships, they remain reasonable,” says Williams. “Ultimately, supply and demand continue to drive the market, and people will always move, whether upgrading or downsizing, based on their needs.”
Developing story, more to follow.
