Divided Fed Votes To Cut Interest Rates Again Despite Mounting Objections From Rebel Faction

In a divided vote, Federal Reserve policymakers have decided to cut interest rates for the third time this year, with concerns about mounting job losses outweighing fears of renewed inflation.

Fed Chair Jerome Powell joined the 9-3 majority on the Federal Open Market Committee to vote for the quarter-point rate cut at Wednesday's meeting in Washington, DC.

"In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation," Powell said at a press conference. "But with downside risks to employment having risen in recent months, the balance of risks has shifted."

Voting against the cut were Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee, who have voiced concerns that lower rates will reignite the smoldering embers of inflation. As well, Fed Gov. Stephen Miran voted in favor of a larger half-point cut.

Meanwhile, the quarterly summary of projections released with the rate decision only underscores the growing differences of opinion on the FOMC, with six officials anonymously reporting that they felt no rate change was needed at this meeting.

"On balance, the data were sufficient for a majority of the committee to support a rate cut, but the vote highlighted the wide variety of perspectives on the appropriate policy decision," says Realtor.com® Chief Economist Danielle Hale.

Wednesday's decision takes the Fed's benchmark overnight rate down to a range of 3.5% to 3.75%, marking the third consecutive cut since September. It marks the lowest federal funds rate since 2022, when the central bank began hiking aggressively to fight runaway inflation.

The Fed policy rate is now 1.75 percentage points lower than in September 2024, but mortgage rates have not experienced commensurate declines. In fact, last week's average mortgage rate of 6.19% remains slightly higher than the two-year low reached in September 2024.

That's because the Fed controls only short-term rates used for overnight lending between commercial banks, while longer-term rates such as mortgages are set by the free market, hinging on investor expectations about future inflation and monetary policy.

Mortgage rates have climbed slightly higher between the October and December Fed meetings, as markets assessed the outspoken and sometimes conflicting outlooks issued by FOMC members.

Despite the upward drift, mortgage rates have remained close to their lowest level in more than a year, potentially unlocking affordability for homebuyers on the edge of being able to purchase a home.

The Realtor.com economic research team's national housing forecast for 2026 anticipates that mortgage rates will largely hover around current levels throughout next year, averaging 6.3%.

"While this may be disappointing to buyers hoping for even lower rates, mortgage rates are expected to be low enough to offset price gains, causing the monthly cost of buying a home to drop in 2026 for the first time since 2020 even as home prices rise," says Hale. "Coupled with rising incomes, affordability will improve."

The Fed uses high interest rates to fight inflation, and lower rates to stimulate the job market, in line with its dual mandate of price stability and maximum employment.

With many key reports on employment and inflation delayed and disrupted by the government shutdown in October, Fed policymakers have had to rely more on private surveys and other supplemental data in their recent decisions.

Fed officials signal silent dissent in new projection

Although only two FOMC members voted against any rate cut, the "dot plot" survey released alongside the decision shows that six felt that no change in rates was warranted.

The anonymous dot plot, which includes the opinions of the 12 voting members as well as seven nonvoting observers, shows that six opposed a cut at the December meeting.

Looking into the future, the divisions are even sharper between doves who favor swift additional interest rate cuts, and hawks who want to hold rates steady or even hike.

Seven members say they believe no further rate cut will be warranted next year. On the other hand, four call for one rate cut in 2026, four predict two, and four favor anywhere from four to six cuts.

In his press conference, Powell downplayed the divisions of opinion on the FOMC, emphasizing that the members had "good, thoughtful, respectful discussions" about the appropriate policy.

"Interestingly, everyone around the table at the FOMC agrees that inflation is too high and we want it to come down, and agrees that the labor market has softened and that there's further risk," he said. "Where the difference is, is how do you weight those risks, and what does your forecast look like?"

Powell's term as Fed chair will expire in May, and President Donald Trump is expected to announce his nominee to take over the role in a matter of weeks.

National Economic Council Director Kevin Hassett, Trump's closest adviser on economic matters, is seen as the clear favorite for the nomination in prediction markets.

While Hassett shares Trump's preference for easier monetary policy, the new dot plot shows that if nominated he would inherit a fractious FOMC with a growing hawkish chorus opposed to further cuts, raising uncertainty about the path of interest rates in 2026.

What latest interest rate cut means for homebuyers

With home prices at record highs and mortgage rates still elevated above 6%, affordability continues to weigh heavily on the housing market, which is on track to end 2025 at or near 30-year lows in home sales for the third straight year.

In his remarks, Powell acknowledged that the housing market is struggling with an affordability crisis, but cautioned that the Fed's latest move is unlikely to solve the problem.

"The housing market faces some some really significant challenges. And I don't know that, you know, a 25 basis point decline in the federal funds rate is going to make much of a difference for people," he said.

Powell noted that the housing market remains undersupplied, with many homeowners who refinanced at sub-3% rates unwilling to move and give up their lower rate.

"We're a ways away from that changing. Also we're just—we haven't built enough housing in the country for a long time," he said. "We can raise and lower interest rates, but we don't really have the tools to address, you know, a secular housing shortage, structural housing shortage."

In short, those who are waiting for the Fed to produce a magical solution to the housing crisis are likely to be disappointed.

However, prospective homebuyers who are financially ready to move forward with a purchase can do so with relative confidence that mortgage rates are unlikely to change dramatically in the next year, says the economist Hale.

Mortgage rates, which briefly spiked above 7% in January, have remained below 6.3% since October, last averaging 6.19% a week ago, close to a one-year low, according to Freddie Mac.

That's already unlocked additional demand from homebuyers, says Vishal Garg, founder and CEO of online mortgage platform Better.com.

"We believe we’re just at the start of a broader wave of homebuying activity heading into 2026. With mortgage rates falling to a one-year low, we’ve seen purchase activity begin to pick up," Garg tells Realtor.com. "There are millions of Americans who’ve been sitting on the sidelines, waiting for affordability to improve, and now, with rates easing and home prices stabilizing, we’re seeing those buyers reenter the market."

Garg says he expect a noticeable uptick in purchase mortgage applications and lock volume this fall and winter, especially from first-time homebuyers and move-up buyers who now find payments more manageable.