Bankrate expects the Fed to cut interest rates another 75 basis points in 2026, continuing the downward trend that has continued since September of 2024. Cuts since then have totaled 175 basis points. Another cut could come at the January FOMC meeting.
Others question if the Fed will be that aggressive in its cuts. Jan Hatzius, Goldman Sachs Research’s chief economist, predicted in a recent report that the Fed would pause its cutting cycle in January before delivering cuts in March and June, pushing the funds rate down to a terminal level of 3-3.25% (compared with 3.75%-4% currently).
According to a Reuters report, J.P. Morgan expects the U.S. Federal Reserve’s next move will be a rate hike in 2027, while Barclays and Morgan Stanley agree with Goldman Sachs that the Fed will postpone any rate cuts until later this year.
Will Mortgage Rates Follow?
Any cut in Fed rates directly affects home equity rates. Mortgage rates are more closely aligned with 10-year Treasuries.
However, Ted Rossman, Bankrate Senior Industry Analyst, cautions that lower rates might come due to troubling economic conditions, namely higher unemployment or a slowing economy.
Either would mean that mortgage and home equity borrowers would be harder pressed to pay these and other debts.
As Bankrate points out, some of the Fed’s recent rate cuts were for “bad” reasons — not because inflation was slowing but because the job market was weakening.
Another risk emerged in January as U.S. prosecutors started investigating current Fed Chair Jerome Powell. A Wall Street Journal article cautioned that the investigation is also a warning to the next Fed chair.
President Trump is expected to appoint a successor that favors lower rates, according to Bankrate and other financial experts.
“If market participants believe the U.S. central bank is cutting rates to satisfy the White House rather than respond to economic data, lenders and investors may start to worry that prices could accelerate again,” Bankrate says. “That could push longer-term interest rates—such as mortgage rates, which are more sensitive to inflation risk—higher, even if the Fed cuts its own policy rate.”
The most likely outcome, according to Rossman says, is somewhere between the two extremes: The Fed trims rates cautiously to support a cooling job market and help displaced workers, while inflation slowly works its way back toward the Fed’s 2% target.
The post Rate Cuts Likely in 2026, But Mortgage Relief May Be Limited first appeared on The MortgagePoint.
