Market Update: Fed Cuts Rates Again as Policymakers Split on 2026

Blog posted On December 10, 2025

The Federal Open Market Committee (FOMC) wrapped up its last meeting of the year today, and the big headline is straightforward: the Fed cut its benchmark interest rate by 0.25%. That moves the federal funds rate to roughly 3.50%–3.75%, marking the third cut of 2025.

The cut itself was widely expected. What matters more is why they did it, how divided they were, and what that signals for mortgage rates and housing going into next year.

RATE CUT OR NO RATE CUT? THE FED WAS SPLIT

Today’s move wasn’t unanimous. The Fed showed one of its biggest splits in years:

• Six policymakers opposed cutting rates today
• Some members wanted no cut
• Others wanted a larger cut

Why this matters:
When the Fed is this divided, it signals uncertainty about where the economy is headed. That uncertainty often pushes investors toward safer bonds, which can pull mortgage rates lower. In simple terms: more economic worry = more downward pressure on mortgage rates.

WHY THE FED CUT RATES TODAY BY 0.25%

The Fed is still balancing two things that don’t always move together:

1. Inflation isn’t fully “done”

Inflation has cooled a lot since the early 2020s, but the Fed still sees it running above its 2% target. They don’t want prices heating back up.

2.  The job market is weakening

Hiring has slowed, and Fed leaders want to avoid unemployment rising too fast. Their message today was essentially: “We’d rather support the economy now than wait for layoffs to accelerate.”

Why this matters:
Fed cuts are meant to keep the economy from slowing too sharply. That helps protect jobs and income, and it also sets the stage for borrowing costs (including mortgages) to gradually improve.

THE FED’S PROJECTIONS FOR NEXT YEAR (2026)

Along with the decision, the Fed released updated forecasts and its “dot plot,” which shows where members expect rates to go. Here’s what stood out:

• The median projection shows one more quarter-point cut in 2026
• But policymakers are not aligned:
  • some expect multiple cuts
  • some expect none
  • a few even see a possible hike

• Unemployment around 4.4% by end-2026
• Core inflation around 2.5% in 2026
• Growth staying modest

What this could mean for mortgage rates:

This points to gradual relief, not a fast reset back to ultra-low-rate years. If you’re waiting for mortgage rates to suddenly fall to 3%, that’s not what the Fed is signaling. Important reminder: the Fed doesn’t set mortgage rates directly. Mortgage rates follow what bond investors expect inflation and the economy to do.

BOTTOM LINE

• Mortgage rates are more likely to trend lower into 2026, but slowly
• Buying could get a little easier next year, not instantly cheaper
• Refinancing may come back into play if the rate trend continues
• The Fed is prioritizing keeping the economy steady and jobs intact

As always, we’re happy to help you game-plan around your goals in this changing market.

Sources: Federal Reserve FOMC Statement, Reuters, The Wall Street Journal, Investopedia, Associated Press, Politico, Investor’s Business Daily, JPMorgan Chase Insights.