Written by: Internal Analysis & Opinion Writers
A 25‑basis‑point cut from the Federal Reserve is widely anticipated, but economists and bond‑market experts caution that the effect on mortgage rates could be limited or even counterintuitive in the near term.
Markets are almost certain that the Fed will reduce its short‑term rate target from 4.25‑4.50% by a quarter point. The pressure on the Fed has been growing — job growth has slowed, labor market indicators are cooling, and investors are pushing for relief amid concerns a recession could take hold if the Fed holds steady for too long.
Mark Zandi of Moody’s Analytics argues that avoiding a recession should be the Fed’s priority. He believes a small cut could help bolster growth and confidence without undermining its fight against inflation. However, he also warns that inflation expectations remain embedded, partly driven by lingering tariff‑related price pressures and supply chain uncertainty.
Doug Duncan, formerly of Fannie Mae, sees the economy as resilient. He believes that while inflation is elevated, it is neither runaway nor uniform. He expects mortgage rates somewhere between 6.5% and 5.5% through 2026 — lower if inflation eases and risk premiums decline, higher if bond yields stay wide due to fiscal and tariff risk.
Lisa Sturtevant of Bright MLS adds another wrinkle: many mortgage rates already reflect the anticipated Fed cut. She suggests that once the cut is in place, rates could actually tick upward if markets interpret it as a signal that inflation is being deprioritized or that the Fed is loosening too much too soon.
Supply constraints in housing, rising inventory, and modest improvements in affordability are also part of the backdrop. Selma Hepp, a real‑estate economist, notes that while the housing market may continue its slow improvement, conditions won’t turn sharply favorable unless borrowing costs fall more substantially.
One major wildcard is how long‑term bond yields react. Mortgage rates are tied more closely to 10‑year Treasury yields than to the Fed’s benchmark itself. If bond yields rise because of concerns over deficits, inflation, or global uncertainty, any cut in short‑term rates may get swallowed by wider spreads.
Another issue is data uncertainty. Revisions to employment numbers, concerns about under‑staffed statistical agencies, and volatility in inflation metrics make it harder for the Fed to set policy with confidence. Poor or delayed data could cause tighter yields—even as the Fed signals easing.
In the end, while a rate cut is likely, the extent of relief to mortgage borrowers may be modest. Borrowers may see small shifts—especially those locking in soon or with loan terms more sensitive to interest‑rate swings—but don’t expect dramatic drops unless several favorable conditions line up: easing inflation, stable bond yields, and confidence in economic outlooks.
