A 25-basis point rate cut from the Federal Open Market Committee (FOMC)at Wednesday’s meeting, with the chances pegged at more than 95%, according to the CME FedWatch Tool and several economists.
“The Federal Open Market Committee (FOMC) is widely expected to lower the federal funds rate by 25 basis points at its October meeting, mirroring September’s move,” said Sam Williamson, senior economist for First American. “This cut would bring the target range to 3.75–4%, marking another step toward a more neutral policy stance as the Fed navigates a landscape clouded by uncertainty.”
Williamson noted that the government shutdown has limited access to fresh employment data, leaving policymakers with less visibility into the underlying health of the labor market. This lack of clarity could spark more disagreement among Committee members, with some advocating for a pause and others pushing for a larger cut to hedge against downside risks.
The October decision carries extra weight, because there is no meeting in November, Williamson noted. “Markets have priced in a cautious cut, viewing it as a risk management move that preserves flexibility until clearer signals emerge. The shutdown’s impact on data availability may force the Fed to rely more heavily on alternative sources—private payrolls, spending trackers, and market-based inflation expectations—which, while useful, lack the depth of official government releases. If the shutdown persists, it would further cloud the outlook and complicate the Committee’s decision set, even as market expectations remain confident about another cut in December.”
Some economists have expressed concerns over rate cut decisions made in lieu of access to government reports. “The U.S. economy is being largely powered by the well-to-do,” wrote Moody’s Analytics Chief Economist Mark Zandi on X during the Fed’s meeting last month. He added that spending among the top 20% of households by income increased during the second quarter of 2025, while spending among the bottom 80% of U.S. households has mostly just matched the pace of inflation since the pandemic.
Mortgage Impact
The average 30-year fixed mortgage rate fell four basis points to 6.04% APR in the week ending Oct. 23, according to rates provided to NerdWallet by Zillow, Florida Realtors noted in a blog. “Even with mortgage rates falling, home shoppers still face high prices and a limited supply of available real estate. Existing homeowners may be more primed to take advantage of falling rates by refinancing, especially if they bought within the past few years.
Mortgage rates were around 7.32% in May of 2024. Anyone who took out a $300,000 mortgage at that rate could refinance now at about 6%, loweinrg monthly payments by nearly $290 and save more than $66,700 over the life of the loan, even after paying closing costs, the blog added.
Balance Sheet Considerations
“While interest rate policy remains front and center, the Federal Reserve’s balance sheet strategy may also play a supporting role in shaping financial conditions,” Williamson added. “Fed Chairman Jerome Powell recently hinted at a potential halt to the Fed’s balance sheet runoff, ending passive reduction and resuming reinvestments—replacing maturing Treasuries, rather than letting the portfolio shrink. That move would restore a steady source of demand into Treasury markets that could nudge longer-term yields lower, including the 10-year Treasury that mortgage rates loosely follow. With mortgage rates already hovering just above three-year lows, even a modest dip could further enhance affordability and stoke housing demand.”
