With official data releases resuming, the fog clouding Fed decisions could be lifted
In one month, the Federal Reserve will announce its final rate decision of 2025. A year that started with the central bank holding rates could end with three straight rate cuts.
After the most recent cuts in October, Fed chair Jerome Powell warned the market to stop guessing along with the Federal Reserve, and that a December rate cut wasn’t guaranteed.
With the government shutdown potentially ending this week, the central bank may get its first look at a complete set of data on employment and inflation since September. One economist believes that what the Fed sees in this data will likely determine the December rate decision.
Shelly Antoniewicz (pictured top), chief economist with the Investment Company Institute (ICI), said having that complete picture might keep the Fed from holding rates due to uncertainty.
“That depends on whether government data for GDP growth, inflation, and employment are out by the December meeting,” Antoniewicz told Mortgage Professional America. “Without this data, I don’t think it would be a surprise if the Fed holds in December. Powell has already telegraphed that intention to the market. If the data starts coming out again, market expectations for a cut could move dramatically depending on what it shows about the state of the economy.”
‘Fog’ pushing down Treasury rates
Powell’s comments after the October rate cut threw cold water on the 10-year Treasury. It has since jumped around.
“The pop-up in the 10-year Treasury yield after the Fed meeting is certainly related to Powell’s remarks about slowing down when you’re driving in a fog,” Antoniewicz said. “I will note that the 10-year Treasury yield has come back down in recent days and likely reflects some weak employment data from third-party sources and weaker consumer sentiment.”
This weekend, when news of a potential end to the shutdown broke, the 10-year Treasury climbed back up.
Antoniewicz said that if the Fed is still limited in official data in the lead-up to the December meeting, if it decides to cut rates this time, it might catch the Treasury markets off guard, and actually lead to a rate drop this time.
“Whether the bond market is surprised depends on whether government data starts flowing again,” she said. “Without government data and with only ambiguous signs from third-party data, a cut in December would likely be a surprise and push medium-term and long-term rates down as the bond market would interpret that the Fed had some pretty solid information to make that decision.”
Balance sheet effects on rates
One thing some experts have been discussing is whether the Fed’s decision to stop the runoff from its balance sheet could put downward pressure on rates. The central bank announced it would be buying Treasuries, which could lower rates.
Barry Habib, CEO of MBS Highway, discussed this topic at both the NAMB national and AIME Fuse events last month. He believed the move by the Fed would address the lack of liquidity in the market.
“What the Fed will now start doing when they officially do this is they'll take them and they'll repurchase,” Habib said. “What they'll likely repurchase is Treasuries. By repurchasing Treasuries, this will put us in a position to see an additional amount of buying to the tune of about $25 billion a month in Treasuries. As Treasuries come down, mortgage rates will follow soon and come down.”
He also believed a change in the rules for bank balance sheets when they purchase Treasuries could also force rates lower. He said he discussed the policy with Treasury secretary Scott Bessant.
“The FDIC and the Fed put a proposal together that will make it easier for banks to buy treasuries,” Habib said. “Right now, banks buy treasuries. They have to take a hit against their capital ratio, their capital account. If he gets this successfully done, banks can do this big arbitrage and then still have their capital intact. They can invest in other things and make more money. Therefore, they buy more treasuries. It brings yields down.”
Michael Weber of Weber Mortgage said the shutdown’s biggest impact is on government employees seeking loans, as brokers work to keep approvals moving despite delays.https://t.co/VX0V2NnfjD
— Mortgage Professional America Magazine (@MPAMagazineUS) November 7, 2025
Antoniewicz said she wasn’t sure it would impact mortgage rates, but it could help the Secured Overnight Financing Rate (SOFR) and repo rates.
“I wouldn’t expect this action to have an impact on medium-term and long-term Treasury rates because the Fed will be buying short-term Treasury bills to replace the maturing MBS,” she said. “I also wouldn’t expect this action to impact mortgage rates because the Fed is maintaining the status quo on MBS—rolling them off their balance sheet as they mature.
“The main impact from the Fed’s action will be to alleviate building pressures in the short-term funding markets where SOFR (Secured Overnight Financing Rate) and repo rates have been elevated.”
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