All eyes are on the Federal Reserve’s final monetary policy meeting of the year. The two-day Federal Open Market Committee session, which began on Tuesday and wraps Wednesday, could shape the path of interest rates well into 2026.
With inflation still elevated and job growth slowing, policymakers face tough choices: keep rates steady to fight inflation or cut them to support the labor market.
Three topics are likely to dominate the discussion:
1. There are limited jobs and inflation data
The central bank will be making its decision without key government data. Employment data for November and the latest inflation figures have been pushed back until mid-December, after the Fed’s meeting, due to the government shutdown.
These two data points — jobs and inflation — are important to the Fed’s interest rate decisions because they are part of its dual mandate: keeping prices stable while supporting the labor market. Balancing these goals has been a challenging task this year, with hiring slowing and layoffs rising, even as inflation has crept higher in recent months, partly driven by tariffs from the Trump administration.
“The Fed’s next decision is a tricky one, given that the most recent federal jobs data is now two to three months old, making it tough to assess the true strength of the current economy,” Melissa Cohn, regional vice president of William Raveis Mortgage, told Homes.com in a statement.
2. A rate cut is expected
Still, Fed policymakers are widely expected to cut the federal funds rate — the benchmark banks use to charge one another for short-term loans — by 25 basis points to a range of 3.50% to 3.75%. It would be its third quarter-point rate cut this year.
A rate cut this week could give some borrowers a break by lowering the cost of loans, from credit card interest to home equity lines of credit. That extra relief could help households at a time when many Americans are feeling the pinch of rising everyday prices.
Yet, mortgage rates tell a different story. Despite declines in the weekly rate the past two weeks, they are edging higher overall, even though the Fed is preparing to cut interest rates. Remember, mortgage rates follow the 10-year Treasury yield, which moves based on global demand for bonds, inflation expectations and the economic outlook, not just Fed decisions.
The “30-year-fixed rates remain below the recent 6.25% threshold, yet they are trending upward as Treasury yields closed near recent highs,” LoanDepot head economist Jeff DerGurahian told Homes.com in a statement.
That upward drift comes even as political pressure mounts. President Donald Trump and other administration officials have criticized Fed Chairman Jerome Powell for not cutting interest rates sooner.
3. Fed committee remains divided
While many expect a rate cut on Wednesday, consensus among the Fed’s 12-member policy committee is far from guaranteed.
“The decision will not be unanimous and is likely to feature dissents,” with some officials pushing for bigger cuts and others wanting to hold rates steady, Matthew Luzzetti, chief U.S. economist at Deutsche Bank, wrote in a note to clients.
Powell acknowledged that members hold “strongly differing views” across the committee over which mandate — price stability or maximum employment — should take precedence. It boils down to whether the economy needs more fuel to bolster the job market or whether it’s time to slow things down as inflation runs hot and tariffs threaten to move it higher.
That tension could be reflected in the Fed’s release of the Summary Economic Projections, better known as a “dot plot,” which outlines where policymakers expect interest rates to land by the end of 2026.
In September, the last time policymakers shared their projections, 19 officials offered 11 different estimates for where rates would land, ranging from about 2.6% to 3.9%, roughly where they hover now.
Just a month later, in October, the Fed lowered its benchmark interest rate to the 3.75%-to-4% target range, saying "uncertainty about the economic outlook remains elevated." The last time rates were in that range was November 2022.
“We have people all over the place,” Stephen Stanley, chief US economist for Santander, said in a note. “There’s always a degree of disagreement on that, but the current range is wider.”
According to Stanley, the estimates matter more now that the Fed’s benchmark is nearing the top of that range. “It starts to become potentially a binding constraint for some of the more hawkish Fed members,” he said. “It definitely means that each successive cut becomes harder and harder.”
Those internal challenges are now colliding with external uncertainty. President Trump’s effort to reshape the Fed’s leadership, aimed at driving interest rates lower, adds complexity to interpreting the economic projections. National Economic Council Director Kevin Hassett has emerged as the leading contender to replace Powell, whose term as chair is set to end in May. Still, Hassett isn’t convinced that Trump has made his final decision on his next Fed chair, despite the president’s public claim, underscoring the unpredictability of the path ahead.