A likely rate cut may not give homebuyers the relief they expect
The Federal Reserve heads into this week’s meeting with markets all but certain it would deliver a third straight quarter‑point rate cut, even as policymakers remain deeply split over how much more easing the economy could bear.
Futures pricing suggests roughly an 87–89% chance of a 0.25 percentage point reduction in the federal funds rate, taking the target range toward the mid‑3% area.
Yet the central bank’s 19‑member committee is unusually fractured, with several officials signaling they prefer to hold, and others arguing for a larger move.
New York Fed president John Williams joined Fed governors Michelle Bowman, Christopher Waller and Stephen Miran in backing more cuts, arguing that rates could be lowered without jeopardising the inflation goal while providing “insurance” against further labour market weakness.
Analysts warned that a 7–5 or 8–4 vote would underscore how contested the path ahead has become and could weaken confidence in the Fed’s guidance.
"It's difficult to recall a time when the Federal Open Market Committee has been so evenly divided about the need for additional rate cuts than the upcoming December meeting," Michael Pearce, chief US economist at Oxford Economics, said in a report.
"It's a close call, but on balance we expect the committee to vote to lower rates" by a quarter of a percentage point.
Gary Cohn, vice chairman at IBM, says the Fed’s December decision could hinge on one or two votes as it weighs inflation control against rising unemployment. His analysis underscores the complexity of the dual mandate and its impact on markets.https://t.co/zgFkcQZIzA
— Mortgage Professional America Magazine (@MPAMagazineUS) December 2, 2025
A “hawkish cut” that point to a pause
Economists broadly expects what Wall Street dubbed a “hawkish cut” – a reduction now, paired with a clear message that the bar for further easing in 2026 remains high.
“Many officials remain concerned about inflation and worry the Fed may be lowering rates too quickly,” Sam Williamson, senior economist at First American, told Mortgage Professional America.
“Against that backdrop, a ‘hawkish cut’ now looks possible, potentially with multiple dissents, with officials likely to stress a higher bar for additional rate cuts.”
Projections from major forecasters such as Deutsche Bank and Bank of America point to only a handful of additional cuts over the next two years, with many expecting rates to stay on hold at the January 27–28 meeting.
The unresolved question is whether tariff‑driven inflation would fade quickly enough to let the Fed focus on rising layoffs and a softer labor market.
Private employers cut 32,000 jobs in November, the steepest drop since early 2023 and a sharp miss against forecasts for solid gains, according to payroll processor ADP.
Challenger, Gray & Christmas data showed more than 1.1 million job cuts through November – the highest since 2020 – with some firms explicitly citing artificial intelligence as a reason to trim staff.
Why a Fed cut would not guarantee lower mortgage rates
For mortgage professionals, the headline cut is only part of the story. Melissa Cohn, regional vice president at William Raveis Mortgage and a 43‑year industry veteran, said borrowers risk reading too much into a single meeting.
“Market expectations are that rates will come down – that they’ll cut by a quarter point,” she said. “The Fed cutting [rates] doesn’t mean mortgage rates are going to come down.”
Originators and secondary‑market specialists have pointed to global demand for US Treasurys, risk premiums and bank funding costs as key drivers of home loan pricing, often overshadowing individual Fed moves.
Cohn said the bigger swing factor is how Chair Jerome Powell framed the outlook in his press conference. “The tone that Powell takes will drive rates one way or the other,” she said. “It’ll set the tone, as it always does, for the next month.”
Right after delivering a second 25‑basis‑point cut in October, Powell downplayed the idea that another reduction in December was guaranteed.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
