CHM Blog

Rate cuts on ice as central bank plays it safe

Just as the new year tries to get its footing, the Federal Reserve is hitting the brakes on interest rate cuts, sending ripples through the housing market just as homebuyers were starting to catch a break. According to newly released minutes from the Fed's December meeting, policymakers are getting cold feet about continuing their rate-cutting campaign in 2025.

Realtor.com's Keith Griffith reports that during their December 9th and 10th meeting, Fed Chair Jerome Powell and the majority voted for a quarter-point rate cut. But meeting minutes reveal that some who voted yes were actually on the fence, suggesting the decision was far closer than the final 9-3 vote made it appear. A few participants admitted they could have easily supported keeping rates unchanged instead. Affordability and increased sales, then, may rely primarily on lower list prices and price reductions on existing listings.

Looking ahead, the Fed's next meeting is January 28th, and prediction markets are putting an 86% chance on rates staying put. Bond markets aren't expecting more than 2 rate cuts for all of 2026, with the first one unlikely before late April. Realtor’s senior economist Joel Berner explains the central bank is treading carefully to keep inflation from running wild, despite disappointing jobs numbers that might otherwise justify lower rates.

This cautious approach has the White House seeing red. Speaking to reporters Monday, threats to fire or sue Powell were revived, calling him "grossly incompetent." Powell's term expires in May.

The Fed's voting lineup is also shifting in 2026. While inflation hawks Jeffrey Schmid and Austan Goolsbee are losing their votes, several rate-cut skeptics are gaining seats, including Cleveland Fed President Beth Hammack. She recently told The Wall Street Journal she'd prefer holding rates steady until spring, and she's expected to lead the cautious faction going forward.

The bright spot in all this? Housing markets are showing signs of life. The December minutes note that several FOMC members see stabilization in housing, thanks to recent drops in mortgage rates. This marks a sharp contrast from September, when participants worried about substantial deterioration in the housing sector.

Mortgage rates have held since late October, a welcome drop from rates seen in early 2024 and those that dominated the first half of last year, according to Freddie Mac. Home sales have responded with modest gains: existing-home sales rose 1.2% in October and another 0.5% in November. Still, 2025 is on track to become a historic low point, with expected sales volumes matching 1995's 30-year basement.

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are getting some support today. The MBS market worsened by -5 bps last week. This was not enough to increase mortgage rates or fees. The market experienced moderate volatility last week.

This Week's Rate Forecast: Neutral

These are the three things that have the greatest ability to impact rates this week. 1) Jobs, 2) Geopolitical, and 3) ISMs

1) Jobs: We have a lot of job and wage related data all week long which culminates with Big Jobs Friday where we will get NFP, Unemployment and Average Hourly Earnings.

2) Geopolitical: A lot of movement over the weekend with Geopolitical events, how those unfold for the rest of the week can have a big impact on long bonds.

3) ISMs: The PMIs and Employment Components of the Manufacturing and Services ISM releases are the most important data points of the week outside the Payroll data.

This Week's Potential Volatility: High

This morning markets are seeing a small boost on geopolitical concerns. Volatility has started at moderate to high levels and could easily become high later in the week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.