Data ‘fog’ drops odds of lower mortgage rates despite Fed cut

The Federal Reserve cut short-term interest rates for a second time this year during its Oct. 29 meeting, but the move may not do much for mortgage rates for the rest of 2025.

As was widely expected, the Fed settled on a 25-basis-point cut, putting the rate in the 3.75% to 4% range. The central bank also announced that it will end quantitative tightening — a tool used to reduce money supply and cool inflation — in December. Ending that policy should provide the economy with more liquidity.

During a press conference, Fed Chair Jerome Powell referred to the cuts as "risk management" moves. "For a long time the risk was clearly inflation, and that has changed now," Powell said. Though inflation remains elevated at 3%, the central bank is considering other pressing concerns about the weakening labor market and job creation as it gauges the health of the U.S. economy.

Powell also noted that the federal government shutdown and lack of government-released economic data while the impasse drags on could impact the monetary policy decisions that the Fed makes at its December meeting.

"What do you do if you're driving in the fog? You slow down," Powell said.

What this means for mortgage rates

With 30-year mortgage rates steadily declining in the weeks before the Fed's October meeting, it appears that a 25-basis-point cut has already been priced in. 

Possibly because of the December rate cut uncertainty that Powell mentioned during the press conference, 30-year mortgage rates jumped from 6.13% to 6.27% in the hours that followed, according to Mortgage News Daily (MND).

"Powell said that another rate cut in December was not a foregone conclusion. This was at odds with the market's expectations, so there was a rush to reprice those expectations," MND COO Matthew Graham wrote in an online post.

As the shutdown enters its fifth week and lapses in government-released economic data continue, mortgage rates may not move much as those who invest in treasury bills look for other economic indicators.

Federal Open Market Committee members had differing views on which direction the central bank should move with short-term interest rates. One committee member — Fed Governor Stephen Miran — voted for a 50-basis-point cut, while another — Kansas City Fed President Jeffrey Schmid — voted to leave the rate unchanged.

"Today's dissenting votes show that the Fed is unlikely to see a majority support faster rate cuts absent a more substantial slowdown in economic activity," said Danielle Hale, chief economist at Realtor.com.

Impacts on buyers, builders

Even with lower mortgage rates, buyers appear to be staying on the sidelines. Pending sales in September were unchanged compared to August and dropped 0.9% compared to a year ago, according to the National Association of Realtors.

A majority of consumers didn't think a quarter-point rate cut would make a difference in their life anyway, a recent WalletHub survey found.

"Lower rates have been bringing some buyers into the market, but according to data from the Mortgage Bankers Association, the recent drop in rates has primarily increased refinance activity rather than purchase activity," said Lisa Sturtevant, chief economist at Bright MLS. "Affordability is still a constraint even as rates have fallen to their lowest level in a year. And consumers are generally feeling more cautious amidst growing economic uncertainty."

But the interest rate cut may have an impact in the new construction industry, suggested Robert Dietz, chief economist at the National Association of Home Builders.

"The reduction of the federal funds rate will have a direct, beneficial effect on interest rates for acquisition, development and construction (AD&C) loans, the key financing channel for private builders who build more than 60% of single-family homes," Dietz wrote in an online post.

More cuts up north

Canada also continued to lower its interest rates with a 25-basis-point cut on Oct. 29. That dropped the country's interest rate to 2.25% as it deals with a struggling labor market and a 2% inflation rate. Canada's unemployment rate leapt to 7.1% in August as the country adjusted to new U.S. tariffs on steel, aluminum and cars.

By Dave Gallagher with Real Estate News