Above, Fed Chair Jerome Powell
The Federal Reserve has announced its second interest rate cut of the year—the second in a row—in the midst of a government shutdown.
The Federal Open Market Committee (FOMC) announced at its October meeting today that it has cut interest rates by a quarter-percentage point. This follows a 25-basis-point cut in September and brings the rate from a range of 4.0% – 4.25% to a range of 3.75% – 4.0%.
There were only two dissents, one for a half percentage point cut from Governor Stephen I. Miran, and one for the rate to remain the same from Kansas City Fed President Jeffrey R. Schmid.
Mortgage Bankers Association (MBA) SVP and Chief Economist Mike Fratantoni commented in a statement that the MBA is forecasting another two 25-basis-point cuts to the federal funds target in December 2025 and then in the first quarter of 2026.
“As these moves were anticipated by the market, MBA does not expect any significant changes to mortgage rates as a result,” said Fratantoni. “Mortgage rates are currently around their low for the year, and this has spurred both refinance and purchase activity.”
Realtor.com® Chief Economist Danielle Hale noted that the Fed’s decisions are anticipated by the market, which means that the upcoming rate cut and several more over the next few months are already largely priced in.
“This means that mortgage rates are not likely to move too much lower from their current position, just above 6% absent surprisingly slower economic activity,” Hale said. “Buyers who have been waiting for some mortgage rate relief might be pleasantly surprised to see how much the drop in rates has improved their position.”
In the press conference following the decision, Fed Chairman Jerome Powell admitted that there were strongly differing views about how to proceed for December’s FOMC meeting.
“A further reduction in the policy rate at the December meeting is not a foregone conclusion; far from it,” he said.
Besides the rate cut, the Fed also announced that it will conclude the reduction of its aggregate securities holdings as of Dec. 1.
“Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” he explained. “Signs have clearly emerged that we have reached that standard.”
Touching on the federal shutdown, Powell said that it will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends.
“This is a temporary state of affairs…We’re going to do our jobs. We’re going to collect every scrap of data we can find, evaluate it and think carefully about it.”
