What to expect from the Fed this week — and in 2026 

While most investors expect the Federal Reserve to cut short-term interest rates one more time before the end of the year, there's been enough jitteriness to impact mortgage rates in the days leading up to the central bank's final meeting of 2025.

The 30-year fixed-rate mortgage has drifted upward ahead of the Dec. 9-10 meeting, averaging 6.36% as of Dec. 8, according to Mortgage News Daily — up from 6.27% a week ago. 

A third rate cut? Many investors are expecting the Fed to cut short-term interest rates by 25 basis points this week. If this occurs, it would be the Fed's third 25-basis-point cut since the start of the year.

Even though a December rate cut seems likely, "we should not expect that to translate into a big drop in mortgage rates," according to Bright MLS Chief Economist Lisa Sturtevant. Since a cut has been widely anticipated for weeks, many economists believe that mortgage lenders have already priced it in.

More rate cuts in 2026? But investors may also be feeling wary about the Fed's quarterly update of economic projections, which could indicate what officials have in mind for the new year.

Currently, it seems like one more cut could occur next year. But the Federal Open Market Committee (FOMC) appears to be increasingly divided, noted Sam Williamson, senior economist at First American. When it comes to the Fed's economic projections, this division means that "even small revisions by a few participants could shift the 2026 median and spark outsized moves in market rate expectations."

A 'measured' recovery: Looking at the bigger picture for real estate in 2026, Williamson said the market should move in the right direction as home price growth continues to cool, incomes rise faster than prices and rates ease at the margin.

"Taken together, these forces point to a measured, but persistent, recovery in buying power through next year — even if mortgage rates don't decline meaningfully," Williamson said.

Shifting back to a neutral policy: When it comes to its decisions on short-term interest rates, the Fed is trying to keep inflation under control without hurting the labor market. With inflation remaining higher than officials want and the job market appearing soft, more FOMC members are trying to shift from a restrictive policy to a neutral one.

After one more cut, many on the committee expect short-term interest rates to be in that neutral territory, according to Danielle Hale, chief economist at Realtor.com.

"This means that some on the Committee expect that the rate is one that is no longer restrictive and therefore may want to see stronger evidence of economic slowing before they can support future rate cuts," Hale said.

If that strategy keeps mortgage rates around 6%, Hale expects home sales will improve in 2026 because rates will be low enough to offset price gains — particularly if incomes continue to climb. "I expect to see home sales in 2026 move more convincingly up from their recent 30-year lows," Hale said.