What happened?

The Federal Reserve cut its benchmark rate by 25 basis points, as was widely anticipated. Chairman Powell reiterated multiple times that a December cut, which the market had previously penciled in, is not a foregone conclusion. As a result, Treasury yields rose during the meeting, which may put upward pressure on mortgage rates in the days ahead. 

Evidence of accelerating cooling in the labor market hasn’t shown up yet in alternative data. Powell noted that in the absence of major government data releases, the Fed has relied more heavily on alternative indicators. While these data sources may not capture subtle shifts in the labor market, they would likely detect major changes, and so far, no such shifts have emerged. Nonetheless, Powell likened making policy decisions under uncertainty to driving in the fog, where the best course of action is to slow down.  

As government data resumes, the market may need to reassess its views on the labor market and inflation, which could lead to volatility in interest rates.

Where will rates go from here? 

Mortgage rates have fallen notably in recent months, providing a tailwind for housing demand during what is usually a slow time on the calendar.

With a cooling labor market, mortgage rates may drift slightly lower through 2026. Still, Zillow expects the 30-year fixed rate to remain confined within the 6%–7% range observed in recent years as two opposing forces – upside risk to inflation and downside risk to the labor market — work against each other. 

How will this impact the housing market? 

The 2025 home shopping season was somewhat lackluster, held back by uncertainty, affordability, and stagnating job growth (the number one reason for moving). Still, there’s reason to expect some pent-up demand from buyers and sellers who paused until the next shopping season to stimulate transactions next spring. While lower mortgage rates would not fix the housing affordability crisis for the typical household, with so many potential buyers shopping on the edge of what they afford, a dip in mortgage rates could bring both buyers and sellers online.