Salvador Cortez at Absolute Mortgage Group Inc.
Salvador Cortez
Absolute Mortgage Group Inc.
Phone: (916) 668-0043
Email: [email protected]
NMLS# 1813194
Company NMLS# 1874315
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Today was a big day for financial markets and mortgage rates. The Federal Reserve held its final meeting of the year, and on the surface, the headline sounds simple:
The Fed cut its short-term rate by 0.25%.
But for the mortgage world, that headline is only the beginning of the story. What really matters for the average 30-year fixed is how the Fed sees the future, not just what they did today.
This blog breaks down:
What the Fed actually did
What the “dot plot” is and why markets obsess over it
Why mortgage rates don’t automatically fall when the Fed cuts
How to explain all of this to a 5th grader
What this means if you are buying or planning to refinance
Heading into today’s announcement, the bond market was already tense.
The 10-year Treasury yield was right up against the top of its 3-month range.
Traders had already spent the past couple of weeks pricing in the risk that the Fed might signal fewer future cuts than markets were hoping for.
A 0.25% rate cut today was essentially a “done deal” in the market’s mind.
In other words, today’s cut itself was not the suspense. The suspense was: What will the Fed say about 2025 and 2026? Are they almost done cutting? Or is there more easing to come if the economy slows further?
That is where the dot plot comes in.
In today’s official statement, the Fed said:
Economic activity is expanding at a moderate pace.
Job gains have slowed , and the unemployment rate has edged up , but remains relatively low.
Inflation has moved up since earlier in the year and remains somewhat elevated.
Risks to employment have increased , meaning they are more worried about the job market than before.
In response, the Fed:
Cut its policy rate by 0.25%. This brings the target range for the federal funds rate down by another quarter point.
Ended quantitative tightening (QT). QT is the process where the Fed allows its bond holdings (Treasuries and mortgage-backed securities) to roll off its balance sheet instead of reinvesting them. Ending QT means the Fed is no longer shrinking its balance sheet.
Said it will start buying shorter-term Treasuries as needed to keep reserves “ample.” That is Fed-speak for making sure the banking system has enough liquidity, without restarting the kind of massive bond buying we saw during the pandemic.
So the Fed is easing in two ways:
Slightly lower short-term rates, and
No longer shrinking its bond holdings.
But again, mortgage rates do not simply copy the Fed Funds Rate. That is where the dot plot and market expectations come into play.
The dot plot is a chart the Fed releases every quarter. Each “dot” represents where a Fed policymaker thinks the short-term rate should be at the end of future years (for example, end of 2025, end of 2026).
It does not lock in a plan, but it shows the Fed’s current thinking about:
How many cuts (or hikes) they think might be needed
How quickly they think the economy will slow
How fast they expect inflation to move toward their 2% goal
In earlier projections:
The median dot implied one more cut in 2025 ,
And one additional cut in 2026 ,
But the 2026 dots were already more scattered, showing uncertainty about the long-run path.
Recently, some Fed members gave more “hawkish” speeches—meaning they sounded less eager to keep cutting. That raised the concern that some of the central dots for 2026 could move higher, which would effectively signal:
“We may be close to done with cuts for now.”
That is why markets watched today’s dot plot so closely. If the dots shifted higher, it would suggest fewer cuts ahead and could keep the average 30-year fixed from improving much—or even push it a bit higher over time.
If the dots stayed more or less in place, it would be more rate-friendly , signaling the Fed is still open to cutting again if the data softens.