Recap of Last Week's Fed
Decision
The Federal Reserve delivered its
third rate cut of 2025, lowering the federal funds target range by 25 basis
points to 3.50% - 3.75%. This move came amid mounting concerns over labor
market softness and persistent—but moderating—inflation. The decision was far
from unanimous: three dissenting votes highlighted growing division within the
FOMC. Chicago Fed President Austan Goolsbee and Kansas City’s Jeffrey Schmid
favored holding rates steady, while Governor Stephen Miran pushed for a deeper
50-basis-point cut.
Chair Powell described the
decision as a “close call,” emphasizing a data-dependent approach going
forward. The Fed also resumed Treasury purchases ($40B) to bolster liquidity—a
stealth easing move that markets welcomed. Stocks rallied sharply post-announcement,
with the Dow gaining nearly 500 points and Treasury yields dipping, signaling
investor confidence in continued accommodation.
Rate Outlook and What to Watch
Looking ahead, the Fed’s dot plot
points to just one rate cut in 2026, keeping the median funds rate near 3.4% by
year-end. Powell signaled a likely pause in January to assess delayed CPI and
jobs data. Market views remain split—some expect two cuts if labor weakens,
while sticky inflation or tariff pressures could curb easing. Our annual
trading deck survey shows participants anticipate 30-year mortgage rates
finishing 2026 between 5.75% and 6.25%, with a few outliers.
Themes Driving Trading This
Week
Markets enter the week focused on
fresh economic data and sector rotation. Nonfarm payrolls and retail sales
figures will shape rate-cut expectations—a strong jobs print could challenge
the Fed’s dovish tilt, while weakness would reinforce easing bias. Corporate
earnings from FedEx, Jabil, and Nike headline the calendar, offering insight
into consumer demand and supply-chain health. Global data, including China’s
industrial output and retail sales along with Eurozone CPI, will influence risk
sentiment. Meanwhile, AI-driven equity volatility persists, and bond markets
are pricing in a higher bar for additional Fed cuts. Watch for continued
flight-to-safety flows into Treasuries if geopolitical or tariff risks flare.
WEEKLY INTEREST RATE SNAPSHOT (Image: Table)
Trading Desk Survey: December
2026 30-year Mortgage Rate Predictions (Image: Graph)
*National average rates are
provided by Bankrate.com and Bloomberg Professional as of 12/15/2025 and are
not advertised rates from Rate, Inc.
