Wednesday, October 29 the Federal Reserve voted (10-2, with one dissenting vote favoring a .5 cut and another dissenting vote favoring no cut at all) to cut the Federal Funds rate by .25, bringing it to a prevailing rate of 3.75-4%.

On the news, mortgage rates rose slightly but remained within a tight range, with those rates remaining near their low point since rising in 2022. The Fed funds rate does not directly impact mortgage rates, and it was the commentary from Fed chairman Jerome Powell, signifying uncertainty about the Fed’s next rate decision due after their December meeting that led to the slight increase in rate.

Each time the Fed makes a rate decision, it’s important to remember their decision is largely already baked into the greater financial markets (stock prices, mortgage-backed security yields, etc), so markets tend to react based on times when the Fed deviates from expected moves (in this case, a .25 reduction was expected by the markets), along with commentary from the Fed chair that can provide clues to future rate fluctuations.

The Fed Funds Rate is the rate at which banks borrow from the Fed and from each other – this is an important benchmark because it is, in it’s simplest terms, the cost of money for banks. This trickles into the cost to consumers, typically the Fed funds rate plus a margin which varies greatly across loan product and bank.

One rate that moves in direct correlation with the Fed move is the “Prime Rate”, which is the rate most credit cards and home equity lines of credit (HELOC) are based on. For this reason, the Fed rate cut does immediately impact credit card rates and HELOC rates, with them dropping .25 after the Fed’s October decision.

With the federal government shut down as of this writing, we are not receiving crucial BLS jobs data, so the Fed is looking to be cautious on future hikes since their rate policy is designed to both keep costs stable and maximize employment (the Fed’s dual mandate), so with jobs data being limited, it will be interesting to see what the Fed does during their next rate decision (December 2025). If data points to further weakness in the jobs market, and inflation remains stable-to-declining, we could see one more rate cut before we call 2025 a wrap.