State of the U.S. economy
The Fed officials also updated their economic projections for 2026, showing real GDP growth rising to 2.3%, up from 1.8% in September. The unemployment outlook held steady at 4.4%, while the forecast for PCE inflation eased to 2.4%, down from 2.6%.
Most officials project interest rates to end 2026 in the 3.25%–3.50% range, implying one additional 25-basis-point cut, unchanged from September’s outlook. Seven officials anticipate no further reductions, while eight expect at least two more cuts.
Inflation reached its highest level since the start of the year in September, rising 3% year over year compared to 2.9% in August, according to the U.S. Bureau of Labor Statistics. Meanwhile, the September jobs report beat estimates by creating 119,000 jobs, but the unemployment rate ticked up to 4.4%
Jeffrey Ruben, president of home lending at WSFS Bank, said the Fed has consistently emphasized that U.S. economic growth remains resilient. “We see good growth this year and into next year as well,” Ruben said.
Ruben added that while the labor market had looked “unbelievably strong” until recently, inflation has been the persistent challenge. The Fed now appears to be prioritizing labor market stability “in hopes of keeping the labor market strong and maybe fending off some of the labor losses that are being perceived in the economy,” he said.
According to Ruben, the Fed continues to navigate a “very foggy road.”
That uncertainty is reflected in the data. According to Sam Williamson, senior economist at First American, the Fed still lacks official October and November jobs numbers, but “September’s jobless rate of 4.4% already sits above the Committee’s central range for ’maximum employment,’ underscoring a softening labor market.”
What’s next?
Bank of America analysts said this week that the base case for 2026 is steady rates, with the 10-year Treasury yield holding around 4.25% by year’s end, along with U.S. gross domestic product growth of 2.4%. But they flagged a potential wildcard: a more dovish Fed leadership.
President Donald Trump is searching for a new Fed Chair to replace Jerome Powell, and Kevin Hassett, director of the White House National Economic Council, is reportedly the leading candidate.
“With a new dovish Chair, the Fed could potentially cut closer to 2%. The outlook for a lower Fed path could allow 10-year Treasury yields to drop to a 3.0%-3.5% range, down from our 4.25% forecast for year-end 2026,” Bank of America analysts wrote.
Williamson expects a gradual path back to neutral, leaving 30-year mortgage rates in the low-6% range next year, drifting down slowly rather than returning to the 3% to 4% levels of the prior cycle.
According to Williamson, as home prices cool, incomes rise faster than prices and rates ease at the margins, buying power could see “a measured, but persistent, recovery.”
Sagent CEO Geno Paluso noted that mortgage rates are down nearly a full percentage point since January, although they actually rose after Fed’s cuts in September and October.
“We must keep servicers prepared to help consumers through all possible market outcomes, from capitalizing on lower-rate refis to navigating hardships,” Paluso said.
Nash Paradise, director of sales for UMortgage, added that the recent declines in mortgage rates were tied to a combination of low liquidity and the jobs report showing more openings than anticipated.
Prior to this week’s Fed meeting, “aggregating analysis was showing two cuts in 2026, with first possibly in April and the second in the third or fourth quarter,” Paradise said.
Selma Hepp, chief ecomomist at Cotality, offered tempered expectations for improved housing affordability.
“Prices remain strong and mortgage rates are unlikely to slip under the 6% mark for a 30-year mortgage, which will keep cautious first-time homebuyers on the sidelines, and overall home-buying activity seasonally slow until we come closer to the spring home buying season,” Hepp said.
Editor’s note: This is a developing story and will be updated.
