Fed lowers interest rates for the third time this year

The Federal Reserve announced another cut in interest rates after its December meeting that ended Wednesday. This is the third rate cut the Fed has announced this year, with the others occurring at the previous two meetings.

The federal funds rate will shift to a range of 3.5%-3.75%. With this cut happening at the last meeting of the year, many are wondering what the Fed plans for interest rates in 2026.

In a statement released after its meeting, the Fed repurposed some language from the statement released before entering into 2025. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks.”

After its December 2024 meeting, the Fed did not cut rates until September of this year. If its reuse of language can hint at its future plans, it might be a while before we see another rate cut.

The next Federal Open Market Committee, which votes as a body on raising or lowering rates, is expected to meet again Jan. 27-28. This will be the first of eight meetings next year and may be one of the last for Chairman Jerome Powell.

Powell has three Fed meetings left before his second term is up and President Donald Trump announces a potential successor.

What does this mean?

The announcement from The Fed means that the cost to borrow money, including for mortgages, could drop a bit more even as mortgage interest rates are still at one of their lowest point this year.

The initial market reactions were mixed on Wednesday. The bond market was lower while the stock market climbed some after the announcement.

How does this affect homeownership?

The Fed’s decisions on interest rates can influence almost every aspect of the economy. Since the last time the Fed cut interest rates, mortgage rates have seen a slight decrease. And interest rates do affect the bond market, which in turn can influence mortgage rates as well.

A few scenarios could be in play:

If investors believe the Fed has done enough for inflation, it could rush into the bond market and drive rates lower.

There’s also the possibility of inflation coming back into focus, particularly as it relates to increases in prices due to tariffs. That has the potential to push rates higher.

The bottom line is, if you need to buy a home, you should buy a home. If you can afford to wait, you may want to wait, though the Fed has given no indication that rates could drop even more this year.

The team at Rate is here to help you navigate a tricky housing market. If you have questions, we have team members available to support you. Also, if you know you need to start the homebuying process, we can assist you in getting a mortgage pre-approval.

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