Are market watchers expecting another reduction in December?
The Federal Reserve’s 25-basis-point rate cut in October sparked immediate and mixed reactions from economists and mortgage professionals, as the central bank took a cautious stance in response to a weakening job market and continued economic uncertainty.
Mike Fratantoni, MBA SVP and chief economist, said the move “met expectations,” noting that the Federal Open Market Committee (FOMC) “was more concerned about downside risks to the job market, although the last official data point was from August, hinting other data points showing further softening.”
Fratantoni flagged the split within the committee, with “two dissents to this rate cut decision, with Governor Miran preferring a 50-basis-point cut and Kansas City Fed president Schmid opting for no change in rates.”
He added that the MBA expects “another two 25-basis-point cuts to the federal funds target in December 2025 and then in the first quarter of 2026.”
The FOMC also announced it would end quantitative tightening on December 1, meaning the Fed’s balance sheet will stop shrinking.
“MBS prepayments and amortization will be rolled into Treasuries going forward,” Fratantoni said.
He emphasized that, as these moves were widely anticipated, “MBA does not expect any significant changes to mortgage rates as a result. Mortgage rates are currently around their low for the year and this has spurred both refinance and purchase activity.”
Market participants echoed the sense of cautious optimism.
“In resuming its rate-cutting cycle, the Fed is responding primarily to signs of weakening labor demand,” said Seema Shah, chief global strategist at Principal Asset Management.
“The apparent softening in the jobs market appears to have prompted a preemptive move to prevent further deterioration, with September’s rate reduction likely marking the start of a sequence of cuts.” Shah projected another 25-basis-point cut at the Fed’s December meeting.
However, the ongoing government shutdown has clouded the economic outlook.
“The near total blackout on government economic data during the shutdown may complicate the Fed’s decision-making,” said Bankrate financial analyst Stephen Kates.
“A prolonged government shutdown and ongoing tariff negotiations continue to introduce significant uncertainty into the immediate monetary policy outlook.”
Mortgage brokers reported a tangible impact on activity.
“I have seen an uptick in mortgage activity over the past 3 weeks as rates have crept lower and as headlines filter out to the public about these rate decreases,” said Andy Gagliano of Gagliano Mortgage, Inc.
“I expect the purchase market to pick up a good bit more once mortgage rates start with a 5.”
Fred Kreger, senior mortgage loan officer at Global State Mortgage, said, “The Fed’s move sends a clear signal: stability is back on the horizon. That’s good news for both homeowners looking to refinance and buyers who’ve been sitting on the sidelines.”
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