As was expected, the Federal Open Market Committee (FOMC) today voted to cut the fed funds rate by 0.25% to 3.75%-4.0%.
The FOMC is also ending quantitative tightening starting December 1, as per a Reuters report, indicating that the overall balance sheet will no longer be shrinking. Mortgage-backed securities prepayments and amortization will be rolled into Treasuries going forward.
In its statement, the committee says that while economic activity has been expanding at a moderate pace, job gains have slowed and the unemployment rate has edged up.
However, the committee notes that inflation has moved up since earlier in the year and remains somewhat elevated.
Voting against the 0.25% cut were FOMC member Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 0.5% at this meeting, and Jeffrey R. Schmid, who wanted no change to the target range for the federal funds rate at this time.
Following the vote, Fed Chairman Jerome Powell indicated that this will likely be the last cut for 2025, mainly because the committee is currently unable to collect the unemployment and other data it needs to make a December cut with confidence, due to the government shutdown.
“What do you do if you’re driving in the fog? You slow down,” Powell told reporters following the meeting, as per a Reuters report.
That does not mean a December rate cut is completely off the table.
“The FOMC met expectations with a 25-basis-point cut at its October meeting,” says Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association, in a statement. “The statement indicated that the committee was more concerned about downside risks to the job market, although the last official data point was from August, hinting other data points showing further softening.”
“Of note, there were two dissents to this rate cut decision, with Governor Miran preferring a 50-basis-point cut and Kansas City Fed president Schmid opting for no change in rates,” Fratantoni says. “MBA is forecasting another two 25-basis-point cuts to the federal funds target in December 2025 and then in the first quarter of 2026.”
Fratantoni adds that the MBA “does not expect any significant changes to mortgage rates as a result” of the cut.