For the second straight meeting of the Federal Reserve’s Federal Open Market Committee (FOMC), it is anticipated that a 25-basis-point rate cut will be announced at the meeting’s end.
That announcement will be made on Wednesday. However, one economist believes the decision may not be as unified as the September cut.
Sam Williamson (pictured top), senior economist at First American, said that because the government shutdown has delayed the release of statistics vital to the central bank’s decision-making process, he won’t be surprised if there is a little more dissent this time.
“We may see more disagreement among Fed members this time, partly due to the government shutdown,” Williamson said. “In September, all but one supported the cut—with one favoring an even larger cut—reflecting broad consensus for a shift toward a more neutral policy stance. But, with no fresh employment data because of the shutdown, the Fed is operating with limited visibility.
“That uncertainty could lead some members to argue for holding rates steady, while others push for a more aggressive cut, despite the lack of data. With no November meeting, markets expect a cautious cut in October, which may serve as a hedge against uncertainty that buys time for clearer signals to emerge.”
Of course, the fed funds rate and mortgage rates are not always perfectly correlated. However, in addition to announcing a rate cut, the Fed may also make official something Fed chair Jerome Powell mentioned earlier this month.
The Fed is expected to announce the end of its balance sheet runoff sometime soon. Economists believe that could help push mortgage rates lower. Williamson agrees with that sentiment.
“If the Fed stops runoff and resumes reinvesting in Treasuries and mortgage-backed securities (MBS), it could influence mortgage rates by increasing demand for government debt,” he said. “That added demand may push down yields on instruments like the 10-year Treasury, which mortgage rates loosely track. As a result, mortgage rates could face modest downward pressure.”
Lower rates could mean more home purchases. So far, rate slides have led to more applications, but not all those applications have resulted in mortgage activities. Some customers, and even brokers, have been waiting for even better rates, which UWM’s Mat Ishbia discouraged in a speech at AIME Fuse this weekend.
Williamson said there could be some signs of life from borrowers if rates continue to slide.
“Mortgage applications typically react quickly to rate movements—especially downward ones,” he said. “The dip in rates may have prompted some borrowers to get preapproved or lock in a rate while shopping. While home sales remain sluggish, the affordability boost from lower mortgage rates does appear to be lifting home sales on the margin.
“Contract closing on existing homes increased 1.5 percent in September to a seasonally adjusted annual rate of 4.06 million, the highest in seven months. Similarly, the Census Bureau’s latest read (from August) on new-home sales is running at an 800,000 SAAR—the fastest since early 2022. While that estimate may be revised lower when the final data arrives, it is an encouraging signal of some life from buyers.”
So far, markets seem to believe a 25-basis-point rate cut in December is in the cards. CME FedWatch places the odds of such a cut at 92.8%.
“Markets are pricing in another ‘risk management cut’ at the Fed’s December meeting, bringing total easing for 2025 to 75 basis points,” Williamson said. “Policymakers have adopted a more dovish posture as the labor market softens, while October’s inflation data suggests tariffs aren’t yet driving a price surge. Those signals support a shift toward neutral policy at the year’s final meeting.”
However, one piece of uncertainty is the government shutdown. Not only could a prolonged shutdown do more damage to a softening jobs market, but it could also keep the Fed in the dark about official government data. So while the markets still expect a cut, Williamson cautions that the Fed might take a more wait-and-see approach if it can’t get the data it needs in December.
“The shutdown could affect Fed decision-making as early as December, when policymakers next meet,” he said. “While alternative data—private payrolls, spending trackers, market-based inflation expectations—can offer partial insight, they lack the depth and consistency of official sources.
“If October data, particularly the jobs report, is delayed or not published, policymakers may choose to adopt a more cautious stance. In that scenario, the Federal Open Market Committee could opt to hold rates steady until officials have a clearer read on the economy.”
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