Federal Reserve statement explained – December 2025

The Federal Open Market Committee of the Federal Reserve reduced the target for the federal funds rate by 0.25%, to a range of 3.5% – 3.75%, on Dec. 10 at its final meeting of 2025. The committee also released projections for the future of the federal funds rate and key economic indicators.

The committee also announced it has decided to buy short-term treasuries. While this has no direct impact on mortgage rates, it’s noteworthy in that mortgage bonds and treasury securities compete for some of the same dollars in the bond market.

Economic conditions

The federal government is back at work, but the extent to which different agencies are playing catch-up with economic data varies significantly. As a result, the Fed isn’t operating with the full suite of data points it usually has at its disposal. However, there were a few economic indicators worth mentioning.

The Fed is constantly balancing goals that are sometimes at odds, namely, maintaining conditions that support both full economic employment and stable prices.

The Bureau of Labor Statistics releases the monthly Employment Situation Report, a survey of both households and businesses that tracks jobs added to public and private payrolls, as well as the unemployment rate. There will be no formal release of the October report, and the November data is delayed until Dec. 16.

The September data was released in mid-November, showing 119,000 jobs added and a 4.4% unemployment rate.

Of course, this data is now months old, so we can turn to weekly claims for unemployment insurance. In the week of Dec. 4, initial claims came in at 191,000, while the 4-week moving average stood at 214,750.

The same report provides insight into continuing claims, which arise from individuals filing unemployment claims over multiple weeks. Tracking this number gauges how difficult it is for people to find new jobs. There were 1.939 million claims in the latest report. The rolling four-week average was about 1.945 million.

On the inflation side, the Fed received its preferred inflation metric for the holiday season: the Personal Consumption Expenditures. The September report showed prices rising 0.3% overall and 0.2% excluding food and energy. Year-over-year, both measures increased 2.8%. The Fed ideally would like to see that number back down to around 2%.

This is where things get a bit interesting on the inflation side as well because there is no upcoming PCE release on the schedule before January, so the reports for October and November may be skipped altogether. The BLS has been forced to skip the October release of the Consumer Price Index and will release the November data on Dec. 18.

Add the lack of data to the disagreement among members of the FOMC regarding the direction rates should take, according to the importance members currently place on inflation versus the job market. It's anyone's guess what happens next. However, because it's the last meeting of the quarter, FOMC members must try to predict just that.

Notably, the Fed anticipates the federal funds rate to remain at a median of 3.4% next year, potentially indicating a single rate cut. After that, officials forecast 3.1% in 2027 and 2028 before settling at 3% in the long run. On the inflation front, Fed members expect it to decline to 2.6% next year and 2.1% in 2027. Long-run unemployment is forecast at 4.2%.

What this means for mortgages

If the Fed reduced the target range for the federal funds rate by 0.25%, then mortgage rates would drop by 0.25% across the industry, right? While we would love to tell you that's true, reality is a little more complicated.

Because mortgages are sold in the secondary market, mortgage pricing today is typically based on what traders expect the rate to be 60 days from now. This means any movement down is already priced into mortgage rates. For this reason, waiting on the Fed doesn’t always make sense.

The one time you might see market movements is if traders are surprised by the direction or magnitude of the Fed’s move, but that doesn’t happen often. But down is obviously better for consumers than up. Down means more purchasing power for buyers and more room to take advantage of lower rates or existing equity in a refinance.¹

If you’re not ready yet, that’s okay. One piece of advice is not to focus on the rate as much as on whether the payment fits into your monthly budget and helps you accomplish your homeownership or financial goals. The rate is important, but it’s not the most important thing.

If you like what you see and are ready to get started, you can apply online.

¹Refinancing may increase finance charges over the life of the loan.