By Peter.
The Federal Reserve delivered its anticipated third consecutive interest rate cut on December 10, 2025, lowering the federal funds rate by 25 basis points to a range of 3.50%-3.75%—marking a 9-3 divided vote, the first dissent in six years. While the move supports a softening job market, the central bank’s updated Summary of Economic Projections (SEP) and Chair Jerome Powell‘s “wait-and-see” remarks point to a pause on further cuts, with only one additional 25bps reduction median-forecast for 2026 amid persistent inflation above 2%.
Key Takeaways from the Fed’s December 2025 Meeting
- Rate Decision: The FOMC trimmed rates to neutral territory, easing from restrictive policy as inflation cools to 2.4% PCE by end-2026 (up from September’s 2.3% forecast). Dissenters (Miran, Goolsbee, Schmid) favored holding steady, citing tariff risks and labor softness.
- Economic Projections: GDP growth revised to 2.3% for 2026 (from 1.7% in 2025); unemployment at 4.5% end-2026 (stable); split views on rates (6 no-cut in 2026, 7 one-cut).
- Powell’s Outlook: “Housing is going to be a problem”—low supply and locked-in low-rate mortgages persist; no tools for structural shortages. Focus shifts to labor (job openings down) over inflation (tariff-driven spikes temporary). “We’re well-positioned to wait and see.”
Mortgage Rates 2026 Forecast: Low-6% Stability, No Dramatic Drops
The cut won’t jolt 30-year fixed mortgage rates, which averaged 6.19% last week (Freddie Mac)—near 2025 lows but up from pandemic sub-3%. Experts predict mid-to-low 6% range through 2026, with gradual easing if labor weakens further.
| Forecast Source | 2026 Mortgage Rate Projection | Key Factors |
|---|---|---|
| Fannie Mae | ~6.0% (late 2026) | Steady Fed holds; modest income growth offsets price stagnation. |
| Realtor.com | 6.3% average | Tariff inflation risks; 2.2% home price rise. |
| Zillow | Low-6% (muted drops) | Slower housing season; no aggressive Fed easing. |
| MBA | Mid-6% | Government shutdown backlog data in Jan could sway. |
Bright MLS’s Lisa Sturtevant: “Fed’s hawkish tilt may nudge rates higher end-2026; inflation concerns loom.” William Raveis’ Melissa Cohn eyes January data dumps for potential relief.
Housing Affordability 2026 Outlook: Modest Gains Amid Labor Headwinds
Even at low-6%, affordability inches up: Realtor.com’s Danielle Hale forecasts median homes eating 29.3% of monthly paychecks (first sub-30% since 2022), with sluggish prices (+2.2%) and wage growth aiding buyers. Sales rebound from 30-year lows, per Hale: “2026 ticks convincingly higher in high-inventory markets.”
Keller Williams’ Ruben Gonzalez tempers: “Weakening jobs tamp demand; 2026 transitional with rising sales but inventory glut.” Powell echoed: Low supply + rate locks stifle moves—Fed can’t fix it alone.
Bottom line: Neutral rates stabilize borrowing; 2026 mortgages hover 6.0-6.3%, boosting sales modestly if jobs hold. Tariff/inflation wildcards? Watch January data for clues.
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