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Following three 25-point cuts in the second half of 2025, the Federal Reserve chose to hold interest rates steady, though One economist said Wednesday, ‘Homebuyers remain active at the start of 2026.’ Another expert noted that ‘mortgage rates are nearly a full percentage point lower than they were a year ago’.
Key points:
- As was widely expected, the Federal Reserve left interest rates unchanged following its January 27-28 meeting, though two committee members dissented.
- The decision comes amid rising geopolitical tensions and debate over the impact of recent housing proposals, issues that have caused mortgage rate volatility.
- Fed Chair Jerome Powell said officials will continue monitoring labor market and inflation data in the weeks ahead. The Fed is next slated to meet March 17-18.
The Federal Reserve is leaving short-term interest rates unchanged, a decision that many economists anticipated ahead of the central bank’s first meeting of 2026.
The move comes on the heels of three consecutive 25-basis-point cuts in the second half of 2025. After the third cut in December, Fed Chair Jerome Powell indicated that officials were ready to hold off on additional cuts now that rates are in a more neutral range of 3.5% to 3.75%.
Of the Federal Open Market Committee’s 12 voting members, two voted against the Jan. 28 decision. Fed Governors Christopher Waller and Stephen Miran had both wanted to lower rates by 25 basis points, according to a Fed news release.
Why rate cuts are on hold
The U.S. economy started 2026 “on a firm footing,” Powell said during a Jan. 28 press conference. But subdued labor market growth, a stabilizing unemployment rate and inflation — which he noted has “eased significantly” since mid-2022 — were all reasons to leave rates unchanged.
The Fed indicated that it is open to adjusting its monetary policy approach as economic signals shift. In addition to labor market and inflation data, officials said they will take “financial and international developments” into account in the months ahead.
Powell previously predicted that the housing supply crunch in particular would “be a problem” — and housing-related activity is still “weak” in contrast with consumer spending and business fixed investment, he said.
What could prompt another rate cut
Moving forward, “a weakening labor market would be an argument” for lowering rates, Powell said. But that alone wouldn’t guarantee a cut. “If inflation were at the same time getting worse, you just have a very difficult situation,” Powell continued, adding that the Fed will be “looking at both” variables.
The possibility of new tariffs “is not helping the situation,” according to William Raveis Mortgage Regional VP Melissa Cohn. “Until there is further economic data to support another rate cut, they will keep the Fed Funds rate as is,” she predicted.
What’ll happen next with mortgage rates?
Since the Fed wasn’t expected to cut short-term interest rates, economists aren’t anticipating significant movement in mortgage rates. Chen Zhao, Redfin’s head of economics research, doesn’t foresee the Fed cutting rates again “until at least this summer,” adding that mortgage rates “are unlikely to change much” during that time.
The 30-year fixed-rate mortgage has fluctuated in recent weeks amid escalating international tensions and the Trump administration’s housing-related policy proposals — developments that were unrelated to the Fed’s January meeting.
“The past 10 days are a textbook reminder that the Fed’s influence over mortgage rates is limited,” said Jake Krimmel, senior economist at Realtor.com.
Fed faces intensifying political pressures
The Fed meeting was held against a backdrop of increasing concern about the agency’s ability to continue operating independently.
Earlier this month, Powell became the focus of a U.S. Department of Justice (DOJ) investigation related to his testimony about plans to renovate the Fed’s headquarters — something Powell referred to as a “pretext,” suggesting it is actually a response to the Fed’s rate cut decisions last year.
A collection of international central bankers joined several former Fed chairs, Treasury secretaries and White House economic advisors in criticizing the DOJ for targeting Powell.
While Powell declined to comment further on the investigation during Wednesday’s press conference, he spoke generally about the importance of central banks retaining their independence.
“To not have direct elected official control over the setting of monetary policy” is “an institutional arrangement that has served the people well” in democracies around the world, Powell said, adding the loss of that independence would make it “hard to restore the credibility of the institution.”
But “we haven’t lost it,” Powell said, and “I don’t believe we will.”
Housing
The Fed does not set mortgage rates, but its decision to either raise or lower its benchmark interest rate influences what it costs borrowers to take out loans for home purchases. As a result, the Fed’s moves are closely watched by housing experts and real estate professionals — many of whom have been hoping for years now that mortgages would become cheaper.
However, the Fed’s decision to stay the course on Wednesday suggests that change in the mortgage sector will only come gradually.
Responding to the Fed’s decision, Mike Fratantoni — a senior vice president and chief economist at the Mortgage Bankers Association — said Wednesday in a statement that the “MBA’s forecast has been for mortgage rates to remain in a relatively narrow trading range for the foreseeable future, likely remaining between 6 and 6.5 [percent] for 30-year conforming loans.”
“The news from this meeting does not change our forecast for mortgage rates,” Fratantoni added.
Also on Wednesday, the MBA reported that applications for home loans decreased last week by 8.5 percent relative to the week prior.
MBA Vice President and Deputy Chief Economist Joel Kan said in a statement that “mortgage rates increased for the first time in a month, and as expected, refinance applications fell by 16 percent. The 30-year fixed rate was the highest in three weeks at 6.24 percent.”
But Kan did offer some hope, noting that conditions were also more favorable last week than they were a year ago at the same time.
“Purchase applications were 18 percent higher than last year’s pace, and the average loan size stayed at its highest level since September 2025, signaling that prospective homebuyers remain active at the start of 2026,” he added.
Rocket Mortgage Chief Business Officer Bill Banfield was also optimistic Wednesday, saying in a statement that “the housing market doesn’t turn on a single rate decision — it turns when people can plan with confidence.”
“Even without a cut today, mortgage rates are nearly a full percentage point lower than they were a year ago, when rates hovered around 6.9 percent,” Banfield added. “That kind of steady, year-over-year improvement is what builds buyer confidence and pulls people back into the market.”
Banfield also said that “buyers and homeowners have largely accepted that 5.5 percent to 6.5 percent is the new normal.”