Federal Reserve Cuts Rate for Third Time as it Grapples with High Inflation and Weak Job Market

WASHINGTON—The Federal Open Market Committee voted 9-3 on Wednesday to cut its benchmark interest rate by a quarter point for the third consecutive time bringing the rate down to 3.5%-3.75%.

However, Federal Reserve Chairman Jerome Powell said the Fed would likely wait and see how the economy performs before cutting rates any further. He noted that of late the job market is showing signs of weakening and inflation has risen.

He also stressed that the Federal Reserve remains committed to bringing the nation’s inflation rate down to 2%. At present, the inflation rate is hovering around 3%.

“We're well positioned to wait and see how the economy evolves,” Powell said in a news conference after the FOMC vote.

In an Economic Summit panel held on Tuesday, National Association of Realtors Chief Economist Lawrence Yun predicted the Fed rate cut and expects two further rate cuts by the Fed in 2026.

Heading into 2026, it is clear that inflation is above the Federal Reserve’s 2% goal and the labor market is showing continued signs of weakening although the release of economic data has been delayed due to the recent government shutdown.

Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni noted the three dissenting FOMC member votes, with one supporting a 50-basis point cut, while the other two calling for no cut in rates at all.

“The projections published from this meeting show the committee does not see a clear path, with members indicating slightly faster growth, but similarly elevated inflation and a fed funds rate path that matches the September projections,” he said.

For those in real estate hoping the Fed’s actions might lead to sharply lower rates, both NAR’s Yun and the MBA’s Fratantoni threw cold water on any likelihood of rates falling much further.

Yun predicted mortgage lending rates would end 2026 at approximately 6%, not much lower than their current levels of near 6.4%.

Fratantoni said after the Fed rate cut yesterday: “Mortgage rates have inched higher over the past week, slowing the pace of refinance applications at a time of year when the purchase market typically slows sharply. Our forecast is for mortgage rates to stay within a fairly narrow range over the next few years. This forecast becomes more likely as the Fed reaches the end of their cutting cycle next year.”

Yesterday, the MBA reported that mortgage applications increased 4.8% from one week earlier for the week ended Dec. 5, 2025 and mortgage rates rose slightly.

The Refinance Index increased 14% from the previous week and was 88% higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index increased 32% compared with the previous week and was 19% higher than the same week one year ago.

“Compared to the prior week’s data, which included an adjustment for the Thanksgiving holiday, mortgage application activity increased last week, driven by an uptick in refinance applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. He later added, “Overall purchase applications continued to run ahead of 2024’s pace as broader housing inventory and affordability conditions improve gradually.”

The refinance share of mortgage activity increased to 58.2% of total applications from 53.0% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 7.0% of total applications.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) increased to 6.33% from 6.32%, with points increasing to 0.60 from 0.58 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $806,500) increased to 6.46% from 6.40%, with points decreasing to 0.35 from 0.40 (including the origination fee) for 80% LTV loans.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.08% from 6.12%, with points decreasing to 0.72 from 0.73 (including the origination fee) for 80% LTV loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.71% from 5.73%, with points remaining unchanged at 0.64 (including the origination fee) for 80% LTV loans.

The average contract interest rate for 5/1 ARMs increased to 5.51% from 5.40%, with points increasing to 0.78 from 0.23 (including the origination fee) for 80% LTV loans.