Fed Pauses Interest Rate Cuts in Defiance of Trump: What It Means for Mortgages and Housing

Federal Reserve policymakers have put further interest rate reductions on hold following three consecutive cuts, defying pressure from President Donald Trump to reduce borrowing costs.

Fed Chair Jerome Powell joined the 10-2 majority on the Federal Open Market Committee to vote in favor of leaving the federal funds rate unchanged at Wednesday's meeting in Washington, DC, signaling confidence in the overall state of the economy.

"We see the current stance of monetary policy as appropriate to promote progress toward both our maximum employment and 2% inflation goals," Powell said at a press conference following the vote. “We’re well-positioned here to watch how the economy performs, look at the data."

Dissenting were Fed Govs. Stephen Miran and Chris Waller, who both voted in favor of a quarter-point rate cut. Both officials have argued that rates should be lower to avoid unnecessarily restricting growth, saying risks to the labor market outweigh concerns about lingering inflation.

Wednesday's decision leaves the Fed's benchmark overnight rate unchanged in a range of 3.5% to 3.75%, which is 75 basis points lower than in early September, before three consecutive quarter-point cuts.

Over the same period, mortgage rates have eased, falling from 6.5% in early September to 6.09% last week, close to a three-year low, according to Freddie Mac.

"For the housing market, today’s meeting was not a game changer" says Realtor.com® senior economist Jake Krimmel. "Instead, the FOMC’s widely anticipated pause underscores the fact that the Fed neither controls mortgage rates nor tries to."

Even though the Fed was widely expected to leave its benchmark rate unchanged in January, mortgage rates have gyrated in recent weeks, following headlines about Trump's plan to purchase $200 billion in mortgage backed securities, and concerns over new tariffs and geopolitical risk.

The Fed does not directly control mortgage rates, but rather sets the short-term interest rate for lending between commercial banks. The central bank uses higher interest rates to fight inflation, and lower rates to stimulate the job market, in line with the central bank's dual mandate of price stability and maximum employment.

Financial markets don't expect the Fed to resume rate cuts until June, although some forecasters including J.P. Morgan analysts believe there may be no further change to interest rates at all in 2026.

"For homebuyers, a steadier Fed outlook should translate into more confidence and planning stability, even if rates don’t fall much further," says Krimmel. "For sellers, consistency is important as well. Stable, predictable rates and easing lock-in effects raise the odds that more buyers gradually return to the market in 2026."

Fed flexes independence despite pressure from Trump

The new rate decision comes at a time of extraordinary political turmoil for the Fed, with Trump ramping up his long-standing pressure campaign for lower interest rates.

Trump, who is expected to announce his nominee to take over as the next Fed chair in the coming days, slammed Powell in comments at Davos last week, calling him "a terrible chairman" who is "always too late" with rate cuts.

Powell in recent weeks revealed that he is under criminal investigation by Trump's Justice Department, calling the probe an intimidation tactic to force the Fed to cut rates.

Meanwhile, the Supreme Court recently heard arguments in Trump's attempt to fire Fed Gov. Lisa Cook over allegations of mortgage fraud, with even conservative justices sharply questioning the administration's handling of the matter.

On Wednesday, Powell called the case, which centers on the president's ability to remove Fed policymakers, "perhaps the most important legal case in the Fed's 113-year history."

Powell has vowed to carry out his duties "without political fear or favor" and to make interest rate decisions based solely on the Fed's dual mandate.

"Public service sometimes requires standing firm in the face of threats," he said in a recent statement.

Powell declined to comment further on the DOJ probe or the Cook case Wednesday, although he reiterated his view that central bank independence from political pressure is vital in the U.S. and elsewhere.

"It's a good practice. It's pretty much everywhere, among countries that look at all like the United States," he said of insulating monetary policy from direct control by elected officials.

"I think if you lose that, it's first of all, it would be hard to restore the credibility of the institution," Powell added. "If you lose that, it's going to be hard to regain it, and we haven't lost it. I don't believe we will."

What Fed rate pause means for housing market

While affordability challenges continue to weigh heavily on the housing market, top agents and brokers say they don't expect the Fed's latest decision to have a major negative impact on buyer demand.

Ivan Sher, a luxury real estate adviser in Las Vegas and founder of IS LUXURY, points out that mortgage rates remain near multiyear lows, and predicts the Fed's pause in rate cuts will shake some buyers out of their "wait and see" mindset.

"With no cut coming, more buyers stop waiting and act," he tells Realtor.com. "Demand stays active, but they’ll stay price sensitive. The homes that are well-priced will see faster offers and more competition."

Sher predicts 2026 will bring normalization to the housing market, after three straight years of weak sales, with transactions hovering at multidecade lows.

"Activity is already improving. Homes that sat are going under contract," he says. "As transactions increase, prices tend to rise, and the key question becomes who captures the equity: Early buyers usually do; later buyers often pay for that clarity."

Rayni Williams, founder of The Beverly Hills Estates, says that while the Fed's recent rate cuts in the fall helped boost consumer confidence, she doesn't believe a pause now will have much impact on the market.

"Rates are not at an all-time high, and with strong banking relationships, they remain reasonable," says Williams. "Ultimately, supply and demand continue to drive the market, and people will always move, whether upgrading or downsizing, based on their needs."

Tom Egan, chief financial officer of home equity investment firm Hometap, says he sees positive signs for the housing market despite ongoing affordability constraints.

"Mortgage rates remain elevated, affordability is strained, and buyers and sellers may remain on the sidelines," he says. "That said, we were surprised to see the spike in existing-home sales which occurred in December. Buyers are resilient and many sellers are considering their options for the year ahead, looking to capitalize on their equity gains.”

Developing story, more to follow.