On December 10th, the United States welcomed its third interest rate cut of the year, totaling 0.75 percentage points, bringing the rates back to near a three-year low. However, President Trump remains very unsatisfied! This rate cut, known as the “hawkish rate cut”, received 9 votes in favor and 3 votes against. Some believe more cuts are needed, while others believe there should be no further cuts. There’s an interesting story behind it, let’s understand it together!
This is the Federal Reserve’s third rate cut of the year, also a 0.25% cut, bringing the federal funds rate range to 3.50%–3.75%. The decision this time saw significant divergence with 9 votes in favor and 3 votes against. The latest “dot plot” shows that only one more rate cut is expected in 2026, then it is expected to remain steady without plans of further rate hikes.
The votes this time represent three “parallel lines”: First is the “big rate cut faction”: Stephen Miran has been advocating for a 0.5% cut at each meeting. Miran believes that with weakening job numbers and the government shutdown affecting data, it’s better to stimulate the economy now and tackle inflation gradually later.
The second line is the “maintain rate faction”: Austan D. Goolsbee and Jeffrey Schmid voted against the rate cut, hoping to maintain the original rate. They believe that inflation is still above 2%, so cutting rates further may be premature, fearing a re-emergence of “inflation resurgence”.
Lastly, there’s the “mainstream faction”: represented by Chairman Powell, who ultimately chose a compromise: a 0.25% rate cut but with a statement hinting at a “lean towards pausing”. They believe that while employment is weakening, inflation remains sticky, so they take small steps each time, watching the situation as they go.
Therefore, this is a typical “hawkish rate cut”, meaning a rate cut in name but emphasizing a “nearly stopping” instead of initiating a large-scale easing. In fact, there is no consensus within the Federal Reserve on whether to prioritize helping employment or tackling inflation, hence the compromise approach to reluctantly maintain outward unity within the team.
From the statements, the Fed’s logic is roughly: economic growth is “moderate”, but employment growth is slowing down, unemployment is rising, indicating a risk of a weakening labor market. Inflation has slightly risen from the beginning of the year, still above the 2% target, but it’s expected to gradually decrease to around 2.4%. The message is similar to saying, “We are providing a bit of economic stimulus now, but we won’t keep cutting rates indefinitely.”
Looking from the White House’s perspective, they are demanding “bigger and more” rate cuts. Trump openly criticized the 0.25% cut as “not enough” and stated it should be at least “double”, also calling Powell a “Deadhead” and “stiff” person!
Powell also mentioned on December 10th that the current inflation exceeding the target is mainly due to Trump’s tariff hikes. The exchange of words between them has escalated tensions between both parties!
Therefore, from Powell’s standpoint, on one hand, he can’t appear to be pressured by the White House to cut rates; on the other hand, it’s undeniable that the economy and employment are indeed weakening, not cutting rates might lead to criticism of “not doing anything”. Hence, this result of “a small cut, but emphasizing it won’t be continuous”, is essentially a way of telling the market: “Hey! I am supporting the economy, but I’m not footing the bill for Trump’s governance.”
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Powell’s term extends until May 2026, but Trump is eager to replace him and has initiated the final round of interviews, with market predictions favoring Kevin Hassett for the nomination.
Hassett is a longtime policy advisor in Republican circles, currently serving as Director of the National Economic Council (NEC) in the White House, Trump’s chief economic advisor, and a supply-side economist. In short: he is known as “Washington’s right-wing academia figure, emphasizing tax reduction, deregulation policies, advocating for increased productivity, Trump’s top economic aide”.
Before the decision meeting in December, Hassett mentioned to the media, “There is room to cut more than 0.25% now.” He believes that AI boosts productivity, enabling the economy to operate at lower interest rates without worrying too much about inflation. In an interview with The Wall Street Journal, Hassett also stated that even if nominated by Trump, he would make decisions based on data, not just following the president’s orders.
In a Fox Business interview, he criticized some Fed officials for talking too much about tariffs and political issues in their speeches, saying that it deviates from what the Fed should focus on. He emphasized that the Fed should return to concentrating on monetary policy and banking supervision, trying to stay away from politics. Therefore, if he becomes the chairman, he wants the Fed to return to his concept of being “apolitical”.
We can summarize his interest rate view in one sentence: “Dovish-leaning, preferring faster and larger rate cuts, believing productivity and technology can contain inflation.”
Next, let’s look at the impact of the rate cuts on mortgage rates. It’s important to remember that the effects of rate cuts on “30-year fixed-rate mortgages” are indirect and are often reflected in the market in advance. Mortgage rates primarily depend on the 10-year Treasury yield + spread, rather than directly on the federal funds rate. The spread includes the difference between the interest rates borrowers get and the returns demanded by mortgage-backed securities (MBS) investors, as well as bank or intermediary costs and profits.
Therefore, the typical path for rate cuts affecting 30-year fixed-rate mortgages this year is as follows: rate cut → changes in market expectations for inflation/economy → changes in the 10-year yield and pricing of mortgage-backed securities → followed by changes in mortgage rates. However, if the 10-year yield rises or the spread widens at the same time, it’s possible to see a situation where “rates are cut, but mortgage rates don’t reduce, or even rise”.
After the rate cut on December 10th, mortgage rates “hardly moved” the next day, as markets often price in expectations in advance. As of December 11th, the 30-year rates from “Mortgage Daily News” were at 6.26%, a decrease of 0.04% from the day before and 0.54% from a year ago.
On December 8th, Trump spoke at a rally in Pennsylvania, and used a chart to show that during President Biden’s term, the total annual mortgage amount had increased by over $14,600, whereas since his second term began, it had decreased by over $2,900.
According to MarketWatch, the White House’s calculations were based on a “national median home price” of around $410,800 (Q2 of 2025), assuming a 10% down payment, calculating monthly payments at a 6.96% rate in January 2025 and a 6.22% rate in December 2025, resulting in an annual decrease of about $2,167.
Realtor.com reported that using new homes for calculations would be closer to Trump’s statement, but using existing homes would show a slight difference in savings amount.
When mortgage rates fall from high levels and approach yearly lows, the volume of refinancing applications usually improves (even without significant rate drops). There have indeed been reports of increased application volume recently. However, whether refinancing is worthwhile depends on your current rate, remaining term, loan balance, and transaction costs.
To determine if refinancing is cost-effective, consider the following three steps:
First, look at the “new rate” you can get compared to the “old rate”. If the old rate is ≥ 7.0% and you can get around 6.3%–6.6%, in most cases, it may be “worth considering” — provided you plan to hold the property long enough and the one-time transaction costs are reasonable.
If the old rate is between 6.5%–6.9%: it usually depends on costs or points, and how long you plan to stay. Refinancing may be somewhat “marginal” or “not necessarily needed”.
If the old rate is ≤ 6.4%: it’s mostly worth applying only if you can achieve very low loan costs or have a clear strategic purpose (such as shortening the term, switching to a fixed rate, removing mortgage insurance PMI).
Using an example, assuming a remaining balance of $500,000, reducing the rate from 7.25% to 6.25% could lead to a monthly reduction of around $332. If the total cost of the refinance is $10,000, the break-even period will be about 30 months (2.5 years). So, if you plan to sell and move within two to three years, this refinancing deal may not be worthwhile.
One common mistake is misinterpreting a “lower monthly payment” because you’re extending the term, resulting in a higher total interest payment. Considering a $500,000 balance at 6.75%, with 25 years remaining, versus refinancing to a 30-year term at 6.25%, even if the monthly payment is lower by about $376, holding till maturity may result in approximately $72,000 more in total interest (excluding transaction costs). Hence, consider the remaining term in your decision-making.
For refinancing to be viable when rates decline, the basic conditions are having a current rate at least 0.75–1.0 percentage points higher than the new rate, keeping loan transaction costs low, planning to hold the property longer than the break-even period (usually 24–36 months or more), and ensuring total interest doesn’t get out of control post-refinancing.
Most industry forecasts indicate that mortgage rates next year will either ease or slightly decrease. In a November forecast for the housing market, housing finance giant Fannie Mae projects that 30-year mortgage rates will drop to 6.2% in the first quarter of 2026 and further to 5.9% by the end of the year.
Additionally, due to a challenging current housing sales environment, more sellers are starting to accept lower prices. This presents a significant advantage to buyers, and mortgage experts suggest potential buyers prepare for home purchasing in 2026.
Jake Vehige, the president of Neighbors Bank Mortgage, suggests that applying for a loan six months to a year in advance is appropriate. This allows you to establish connections with loan institutions and develop plans with them, enabling you to purchase a home in 2026.
Melanie Musson, an insurance expert from Clearsurance, advises that while getting pre-approval from a mortgage institution is important, it’s just the beginning. “You shouldn’t treat the pre-approved loan amount as your budget but as a starting point. Next, you need to determine how much you can afford.” She gives three advices to prospective homebuyers: build up savings, pay off debt to improve your debt-to-income ratio, and check your credit score to ensure lenders have no financial objections. ◇