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Market Analysis 12.10.25: Rates In A Holding Pattern

Good morning on this best day of the week Wednesday, from your Hometown Lender,

Rates are in a holding pattern waiting for the Fed to speak. If history repeats itself, and I have no reason to think not, it is very possible that bonds could tumble after the announcement. Markets are not likely to have a great reaction to Fed Chair Jerome Powell’s press conference.

Yes, the Fed will cut its policy rate by a quarter point, but that’s already been priced in to rates for a couple of weeks. Now we see how market’s feel about the idea that the Fed is done cutting for now and maybe done cutting till Powell leaves in May.

CNBC shared:

  • Fed funds futures are pricing in a nearly 90% chance of a 25 basis point decrease, according to CME’s FedWatch tool.
  • But many are expecting it to be a “hawkish cut,” meaning the central bank will make clear that it could be its last reduction for a while.
  • CNBC’s Fed survey shows 87% of respondents believe the central bank will lower rates today, though only 45% think it actually should. Just 35% predict another cut in January.
  • Meanwhile, CNBC’s Steve Liesman reported this morning that President Donald Trump will start final interviews for the Fed’s next chair this week — starting with former Fed Governor Kevin Warsh.

Market analysis from a higher level..

Market analysis & Rate Outlook (am PT) Quick take

  • Fed Day (2:00 pm ET): Futures put the odds of a 25 bp cut very high; Powell speaks 2:30 pm ET. Markets care most about the 2026 “dot plot” and guidance on any pause. Reuters+1
  • Bonds: The 10-yr UST ~4.18–4.21% into the decision; technicals note 4.20% as a pivot. Global yields are firm after hawkish signals abroad. Yahoo Finance+1
  • Mortgage rates today: National 30-yr tracking ~6.26–6.35% (daily indices); last Freddie PMMS weekly print was 6.19% (12/4). Bankrate+2Mortgage News Daily+2
  • Data vacuum: Because of the long shutdown, October CPI was canceled, and November CPI (Dec 18) and Nov jobs (Dec 16) arrive after today’s Fed decision—raising uncertainty. Bureau of Labor Statistics+2Bureau of Labor Statistics+2
  • Supply watch: 10-yr note reopened yesterday; 30-yr bond reopens Thu (1 pm ET). Auctions can swing yields/MBS into the close. U.S. Department of the Treasury

What’s moving markets

  • Fed decision & guidance: Statement at 2:00 pm ET and Powell at 2:30 pm ET. Street expects a cut today, then debate about how many cuts in 2026 (several desks see only a couple). The “dots” and any hints on liquidity/buybacks matter for term premium (long-end yields). Reuters+1
  • Global rate backdrop: Eurozone officials struck a hawkish tone; global long yields have pushed higher—raising a headwind for U.S. MBS even if the Fed cuts the front end. Reuters
  • Energy: Brent ~$62—soft energy prices help headline inflation optics, but aren’t decisive without fresh CPI/PCE prints. Reuters+1

Market analysis: rate snapshot (indicative, a.m.)

Calendar (near-term catalysts)

Market analysis: how this could impact mortgage rates (today → next 1–2 weeks)

If the Fed cuts and signals a pause (few 2026 cuts, cautious inflation language):

  • Long yields could hold ~4.1–4.3%; mortgages ~6.2–6.4%. Lock/float becomes event-driven around auctions and data. Reuters+1

If the Fed cuts and opens the door to more easing (softer 2026 dots, balance-sheet/liq support):

  • Curve steepens less, 10-yr can drift lower, and mortgages could test the low-6s. Watch CPI/Jobs next week to confirm. Reuters

If the Fed under-delivers (no cut or hawkish dots/press conference):

  • Term premium reprices; 10-yr could push >4.3%, and mortgage rates bounce. Reuters

Operational note: Treasury supply (30-yr tomorrow) can blunt any Fed-day rally late today/tomorrow. U.S. Department of the Treasury

Market analysis: 2026 mortgage-rate expectations (what we’re telling clients)

  • Fannie Mae ESR: year-end 2026 ~5.9%. Fannie Mae
  • MBA: ~6.0–6.5% average range through 2026. MBA+1
  • Realtor.com (Dec forecast): ~6.3% average in 2026; modest sales/price gains. Media | Move, Inc.+1
  • Reuters poll (today): 2026 avg ~6.18%, with home-price growth ~1.4%. Reuters

Our base case: Mortgage rates gradually drift toward ~6.0–6.3% in 2026, with downside toward high-5s only if inflation and term premium both ease and supply/tariff pressures calm. (That’s why CPI/Jobs re-starts next week are so important.) Bureau of Labor Statistics

Guidance (today)

  • Purchase borrowers: Measured locking bias on live contracts heading into the 2:00 pm ET statement and tomorrow’s 30-yr auction. Consider float-down options where available.
  • Refi candidates: Rate dips remain choppy; have files credit-approved & e-signed so we can strike if the post-Fed tone is friendly.

Stay safe and make today great!