Housing News

New Year, New Market as the Fed Lowers Interest Rates

Welcome back to the Mortgage Rundown. We are going to talk about what’s happening with interest rates.

It was a big day for the market. The U.S. Federal Reserve, in a widely expected move, lowered interest rates a quarter of a percentage point in the final meeting of the year. The Fed’s benchmark rate is now in the range of 3.5% to 3.75%.

In 2025, we’ve seen the Fed lower rates three times. On top of that, the Fed has paused its policy of quantitative tightening (QT), which is the unwinding of their balance sheet. This has been great for interest rates, especially mortgage rates.

Even though mortgage rates had a bumpy spring, they’ve dropped materially in 2025.

In terms of what the Fed might do in 2026, we have to look at the jobs market, the economy, and inflation.

The economy is still on solid ground. But we are seeing a trend of lower jobs numbers, whether you look at the non-farm payroll report or the ADP data. Due to the government shutdown, I’m not going to discuss the non-farm report and instead focus on ADP data.

Job growth is at or below zero right now.

Now, because the jobs numbers are so weak, we would normally expect the Federal Reserve to lower rates more aggressively. But unfortunately, due to sticky inflation hovering around 3%, the Fed is very cautious about doing so.

If inflation continues to come down while the job market suffers, we should see the Federal Reserve push rates down even further next year.

That’s it everyone from the capital markets desk this week. Have a great day, a happy holidays, and see you next year.