“Market expectations for a December rate cut initially retreated after Powell said it was ‘far from guaranteed’ and meeting minutes showed officials leaning toward holding steady,” Williamson told Mortgage Professional America. “However, since then, rising unemployment and softer signals from policymakers have revived bets on a quarter-point cut.”
However, if the market thought Powell’s message delivered a hawkish tone in October, December’s cut will likely be even more contentious. Williamson said while the Fed will lower its funds rate, the messaging, along with the cut and potential dissents, will signal to the market that it will enter 2026 with caution.
“Many officials remain concerned about inflation and worry the Fed may be lowering rates too quickly,” Williamson said. “Against that backdrop, a ‘hawkish cut’ now looks possible, potentially with multiple dissents, with officials likely to stress a higher bar for additional rate cuts.”
Risk of rate volatility
If there are official dissents to the FOMC’s decision, it won’t be the first time that’s happened this year. The question is, if there are multiple dissents combined with a hawkish cut, how will Treasury markets react? Williamson said there could be a market reaction, but overall rates will move based on the overall economic picture.
“A more openly divided Fed can increase perceived policy uncertainty, nudging term premiums higher and making Treasury yields—and, by extension, mortgage rates—a bit more volatile around key meetings,” he said. “However, the overall level of mortgage rates is still driven primarily by the underlying inflation outlook, expectations for the full path of rate cuts, and mortgage rate spreads.
