A December Fed Cut Is in Play Again—But What Would It Really Mean for Mortgage Rates?

Core Insights - Financial markets are currently pricing in an 85% probability of a Federal Reserve rate cut by 25 basis points at the December 10 meeting, a significant shift from previous expectations of a hold [2][4] - The volatility in rate expectations is influenced by the balance the Fed must maintain between persistent inflation and signs of weakness in the job market [3][5] - Mortgage rates, currently at a 13-month low of 6.43%, may not necessarily follow a Fed rate cut due to their dependence on broader market forces rather than directly on the Fed's benchmark rate [7][10][13] Summary by Sections Federal Reserve Rate Cut Expectations - The likelihood of a December rate cut has increased sharply, with market sentiment shifting after comments from a key Fed policymaker [2][4] - The recent government data delays due to a shutdown have contributed to the uncertainty surrounding rate decisions [3] Mortgage Rates Dynamics - Despite the potential Fed cut, mortgage rates are influenced more by the bond market, particularly the 10-year Treasury yield, rather than directly by the Fed's actions [10][11] - Historical trends show that mortgage rates have risen following previous Fed cuts, indicating a disconnect between Fed policy and mortgage rate movements [12] Current Mortgage Rate Landscape - The average 30-year fixed mortgage rate is currently at 6.43%, which is lower than the peak of 7.15% in mid-May, providing some relief for buyers [13] - Forecasts suggest that mortgage rates will remain in the low-6% range through 2025, with only modest decreases expected [14][15]