Federal Reserve Cuts Rates Again in October

Fed cuts in October

The Federal Reserve made its second federal funds rate cut of 2025 in October.

Despite gains in the latest inflation reading, the administration’s weakening labor market and elevated economic chaos were enough for the central bank to make the quarter-point cut.

“Lower mortgage rates are a good thing for potential homeowners and the Fed is continuing its slow and steady approach to reducing the cost of mortgage lending, while keeping an eye on inflationary pressures,” said Selma Hepp, chief economist at Cotality. “Our data shows that pending home sales are rising year over year. This is a trend that will continue, especially when it is widely expected that the Fed will reduce rates one more time this year.”

How will mortgage rates react to the Fed news?

Interest rates typically rise alongside increases to the fed funds rate and decline after cuts. However, mortgage rate movements varied in the immediate aftermath of the most recent Fed decisions.

The day following each of the last two holds in in June and July, the average 30-year fixed rate fell four (0.04%) and two (0.02%) basis points week-over-week, according to Freddie Mac. After September’s cut, the average dropped nine (0.09%) points from the week prior.

Interest rates trended downward over the last three months, as the average 30-year FRM gradually descended to 6.19% on October 23 from 6.74% on July 24. The second Fed cut of 2025 will likely keep interest rates following a similar trajectory heading into next year.

In its post-meeting statement, the FOMC said economic activity continues to expand at a moderate pace, with low-but-growing unemployment, and somewhat elevated inflation.

The inflation rate progressed toward the FOMC’s 2% goal to begin 2025 before most recently rising to 3% from 2.9% in August and 2.7% in July, according to the Bureau of Labor Statistics*.

*In August, President Trump fired the Bureau of Labor Statistics commissioner following a weak jobs report.

“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,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “Mortgage rates are currently around their low for the year and this has spurred both refinance and purchase activity. 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.”

While the Fed had been adamant in its need for decelerating inflation for a cut to be called for, deteriorating economic conditions for the vast majority of people in the country was enough to drive another cut. Whether or not mortgage rates follow remains to be seen, but they currently hover at annual lows and came down compared to the last two years.

“The biggest mistake I see is waiting for the perfect rate. If you’re ready to buy, the smartest move is still to lock in your rate now,” said Charles Goodwin, head of bridge and DSCR lending at Kiavi. “Waiting on the sidelines for a big drop is risky since history shows Fed cuts don’t always flow through to mortgages. A home purchase should be about readiness: do you have a contract in hand, is the payment affordable, and does the home fit your needs? That matters more than trying to time the market for an eighth or a quarter of a percent.”

The Fed’s role and October’s FOMC meeting

At its October meeting, the Federal Open Market Committee (FOMC) voted in a 10-2 majority to cut the federal funds target range by 25 basis points (with one of the two nay votes advocating for a 50-basis point cut and the other wanting none). This decision marks the second straight cut of 2025 after five-straight holds in January, March, May, June, and July.

In addition to the fed funds rate cut, the FOMC will conclude the reduction of its Treasury securities, mortgage-backed securities, and agency debt. The committee said it’s prepared to adjust its policy stance based on new data and evolving outlooks.

The U.S. annualized inflation rate hit a 41-year high of 9.1% in June 2022 and the Fed began taking action to tame it. Since the beginning of 2025, inflation swung down and back up, starting at 3% in January, hitting a low of 2.3% in April, then gradually climbing to 3% in September. The inflation rate remains above the Fed’s long-term goal of 2%.

President Trump and his administration have scrutinized the Fed, calling central bank chairman Jerome Powell a “fool” and “numbskull,” and openly asking for his resignation if cuts didn’t come. Recently, the President lost a court appeal trying to fire governor Lisa Cook.

In addition to the Fed’s actions, multiple economic and geopolitical factors influence mortgage rates. While the central bank technically doesn’t set mortgage interest rates itself, its monetary policies do intrinsically correlate with mortgage rate movements.

Based on the latest projection materials, another cut could be in store this year. The FOMC meets once more to wrap up 2025, convening on December 9-10.

Should you lock in a mortgage rate?

Being influenced by a bevy of factors make mortgage rates subject to high volatility — especially in volatile times.

Although projections can (and do) shift with new information, the FOMC’s latest cut signaled continued weakness in the labor market and an unstable economic forecast. A slowing inflation rate could put more cuts on the horizon.

“Purchase buyers should lock sooner, because certainty matters when you’re under contract and heading to closing,” said Goodwin. “On the flip side, if you’re still early in your search, you’ve got more time to see if late-year declines materialize. Refinancers have more flexibility. They’re not racing against a deadline, so they can afford to wait and see if small improvements come through later this year. But don’t expect another pandemic-era plunge.”

Regardless of where rates go, you should always negotiate and get creative in budgeting. Building home equity is one of the most common ways to gain wealth and biggest advantages of owning property.

If you’re ready to begin your path to homeownership, talk to a local mortgage professional to see what rates and loan types you qualify for.