In short: Chairman Jerome Powell leaves its benchmark rate unchanged at the January FOMC meeting, citing stabilization in the unemployment rate and still elevated inflation. Post meeting, investor expectations of a Fed pause extended.
What’s next for rates:
After cutting its benchmark rate by a quarter point in each of its last three meetings, the Federal Reserve appears to be in a comfortable settling place for a pause. Since the previous meeting, Powell notes that the outlook for economic growth has improved, suggesting that the current level of rates has not been significantly restricting the economy. While inflation still remains above target, elevated readings from goods are likely one-off impacts by tariffs, whereas services and housing price growth has been slowing. While market probability for “no change” increased for the next subsequent meetings, the 10-year treasury yield, which mortgage rates can follow, was little changed.
What’s the impact on housing?
Though Zillow forecasts only very moderate declines in borrowing costs, 2026 is shaping up as the year for small wins. Affordability is set to gradually improve as modest rises in home values means that incomes can catch up, opening up a wider pool of shoppers able to buy a home. If the announced plan to purchase mortgage backed securities is implemented, it could move mortgage rates directly, lower than Zillow’s original forecasts.