Why brokers need to pay attention to dissents, messaging from central bank
Immediately after announcing a second straight 25 basis point rate cut in October, Federal Reserve chair Jerome Powell threw cold water on the idea that a third consecutive cut in December was a foregone conclusion.
Yet two months later, as the Federal Open Market Committee (FOMC) prepares to announce its final rate decision of 2025, all signs point to a third straight 25 bps cut on Wednesday.
Sam Williamson (pictured top), senior economist at First American, said a continuing softness in the jobs market will likely force the Fed’s hand again.
“Market expectations for a December rate cut initially retreated after Powell said it was ‘far from guaranteed’ and meeting minutes showed officials leaning toward holding steady,” Williamson told Mortgage Professional America. “However, since then, rising unemployment and softer signals from policymakers have revived bets on a quarter-point cut.”
However, if the market thought Powell’s message delivered a hawkish tone in October, December’s cut will likely be even more contentious. Williamson said while the Fed will lower its funds rate, the messaging, along with the cut and potential dissents, will signal to the market that it will enter 2026 with caution.
“Many officials remain concerned about inflation and worry the Fed may be lowering rates too quickly,” Williamson said. “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.”
Risk of rate volatility
If there are official dissents to the FOMC’s decision, it won’t be the first time that’s happened this year. The question is, if there are multiple dissents combined with a hawkish cut, how will Treasury markets react? Williamson said there could be a market reaction, but overall rates will move based on the overall economic picture.
“A more openly divided Fed can increase perceived policy uncertainty, nudging term premiums higher and making Treasury yields—and, by extension, mortgage rates—a bit more volatile around key meetings,” he said. “However, the overall level of mortgage rates is still driven primarily by the underlying inflation outlook, expectations for the full path of rate cuts, and mortgage rate spreads.
“If the Fed’s statement stresses a higher bar for additional easing and hints at a January pause, it could temper how aggressively markets price additional cuts.”
Williamson said that while limited official data can affect market expectations, the real issue is that, with rates approaching neutral, even small changes in either jobs or inflation data can sway Fed votes.
“Data gaps may have added some noise, but the larger issue is a genuine split in how policymakers read the balance of risks,” he said. “With the policy rate closer to neutral, small differences in how officials weigh inflation risks versus employment risks translate into very different views on the appropriate pace of easing. Markets are reacting to this wider range of perspectives, not just the timing of the next data release.”
2025 Fed final exam
The Federal Reserve will wrap up this current term with the December meeting. New regional governors will join the voting group in 2026, along with other potential changes to membership.
Powell will also have just three more rate decision meetings left in his term as chair, which ends in May. President Donald Trump has promised to announce his successor soon, with National Economic Council director Kevin Hassett as the presumed frontrunner.
For this FOMC, 2025 has been challenging, with potential rate easing delayed earlier in the year by the uncertainty around tariffs. A government shutdown leading to official data delays threatened to delay easing policy at the end of the year.
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
While Williamson didn’t assign the 2025 FOMC a letter grade, he acknowledged the challenges they faced with uncertain economic conditions. He also commended the Fed’s ability to remain consistent in its economic messaging despite the headwinds it faced in decision-making.
“More important than a letter grade is how the Fed navigated a difficult economic landscape,” he said. “While inflation remains above the long-run target and has recently trended in the wrong direction, expectations remain anchored, despite tariff-related and other supply-side headwinds. The labor market has cooled without collapsing, and the Fed has nudged policy toward neutral rather than waiting for a sharper downturn.
“On communication, the Fed gets bonus points for its consistent messaging and a clear commitment to data dependence in today’s challenging environment.”
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