Fed Cuts Key Interest Rate for Second Time This Year

Fed Cuts Key Interest Rate for Second Time This Year

The Federal Reserve lowered its benchmark interest rate by a quarter point Wednesday — its second cut of 2025 — bringing the target range to 3.75%–4%, the lowest in three years.

Fed Chair Jerome Powell said the move comes amid “elevated uncertainty” about the economic outlook and limited government data due to the ongoing shutdown. “A further reduction in December is not a foregone conclusion — far from it,” Powell said.

The central bank remains focused on bringing inflation back to 2% as unemployment rises to 4.3%, up nearly a full point since last spring. Layoffs have climbed 66% year over year, the highest since 2020.

Real estate professionals welcomed the cut as a signal of confidence that could ease borrowing costs and revive stalled deals. “The October rate cut signals greater conviction in the Fed’s direction and will help fuel decision-making long postponed,” said Marion Jones of Avison Young.

EagleBank’s Ryan Riel added that the move is already spurring lending activity in the D.C. area. In one example, Newmark recently arranged a $67.5 million refinancing for a Maryland multifamily property, citing renewed market momentum.

The Fed also announced plans to halt the runoff of its $6.6 trillion balance sheet beginning Dec. 1, citing tightening liquidity. Powell said the central bank won’t resume buying mortgage-backed securities but remains committed to trimming its $2 trillion MBS holdings.

Mortgage rates have eased slightly — Freddie Mac reported an average 6.19% last week — but analysts say affordability has barely improved. “Bond yields drifted slightly higher after the Fed’s announcement, suggesting investors doubt further cuts are imminent,” said Carl Gomez of Homes.com.

Powell reiterated that inflation “remains elevated,” even as hiring slows. The Fed’s decisions heading into 2026 will be shaped by a mix of soft labor data, tariff pressures, and leadership uncertainty, with Powell’s term expiring in May and the Trump administration preparing to name his potential successor.