Fed Rate Cut Is Likely Next Week, but Don’t Expect Mortgage Rates To Budge

Federal Reserve policymakers are expected to vote in favor of another interest rate cut next week, but experts are expecting little impact on mortgage rates, which have hovered near one-year lows around 6.2% for the last month.

The Realtor.com® economic research team's 2026 national housing forecast, released Wednesday, projects that mortgage rates will stay at around their current levels throughout the next year.

"While this may be disappointing to buyers hoping for even lower rates, mortgage rates are expected to be low enough to offset price gains, causing the monthly cost of buying a home to drop in 2026 for the first time since 2020 even as home prices rise," says Realtor.com Chief Economist Danielle Hale. "Coupled with rising incomes, affordability will improve."

On Dec. 10, the 12-member Federal Open Market Committee will vote on its new interest rate policy, after deciding in late October to reduce the overnight benchmark rate to a range of 3.75% to 4%.

The panel remains bitterly divided following multiple dissenting votes in October, with several members indicating they will not support a rate cut at next week's meeting.

However, key allies of Fed Chair Jerome Powell signaled their support for another rate cut in recent days, suggesting the powerful central banker will steer the committee toward a consensus in favor of reducing the policy rate.

New data Wednesday also bolstered the case for a cut, with payroll processor ADP reporting that companies shed 32,000 jobs last month, led by steep cuts at small businesses.

The Fed uses higher interest rates to fight inflation, and lower rates to boost the labor market, in line with its dual mandate of price stability and maximum employment.

"On balance, the data that are currently available are likely sufficient for a majority of the committee to support a rate cut, but I expect the vote will again highlight the wide variety of perspectives on the appropriate policy decision," says Hale.

But the economist notes that, due to the government shutdown, many key federal economic reports remain delayed, including the November jobs report, which should have come out this week.

"The lack of updated data will complicate the Fed’s ability to assess economic conditions, but the Fed will use the public data that is available and augment this with its own and private data reports," says Hale.

In financial and prediction markets, the probability of another quarter-point rate cut on Dec. 10 was roughly 89% to 94% late Wednesday, signaling high confidence that the Fed will cut rates.

It means that a rate cut is already largely priced in to mortgage rates, which follow the movement of long-term bond yields.

Trump decision on next Fed chair expected soon

Meanwhile, President Donald Trump said this week that he will announce his nominee to replace Powell in early 2026, and dangled National Economic Council Director Kevin Hassett as his potential choice.

“We’ll be announcing somebody, probably early next year, for the new chairman of the Fed,” Trump said during a Cabinet meeting at the White House on Tuesday.

“I guess a potential Fed chair is here too,” Trump added, referring to Hassett. "He’s a respected person that I can tell you. Thank you, Kevin.”

Powell, whose term is due to expire in May, faced Trump's fury earlier this year when the Fed held interest rates steady despite the president's calls for easier money.

Hassett, seen as Trump's closest economic adviser, has emerged as the presumed front-runner to replace Powell among the five finalists selected by Treasury Secretary Scott Bessent.

On Sunday, Hassett downplayed the rumors of his front-runner status in an interview with CBS News' Face the Nation, saying he was "not sure" if journalists had gotten the story right.

"I'm really honored to be amongst a group of really great candidates," he said. "I think that the American people could expect President Trump to pick somebody who's going to help them, you know, have cheaper car loans and easier access to mortgages at lower rates."

Whomever Trump nominates, an early January announcement would potentially set up a five-month period of a "shadow Fed chair," who could influence market-based interest rates by setting expectations for future policy.

On the other hand, Trump's nominee will face the task of establishing credibility with investors as a serious inflation fighter. Failure to do so could lead long-term interest rates, including mortgage rates, to rise as investors shun the dollar or demand more premium for expected inflation risk.