Fed Cuts Rates, Stocks Soar — But U.S. Mortgage Rates Refuse to Budge!

Fed rate cut: On Oct. 29 the Federal Reserve delivered a widely expected 25 basis-point cut, lowering the fed funds target to 3.75–4.00% ^[1]. Officials (e.g. Waller, Collins) cited slowing job growth and 3% inflation, signaling more cuts this year ^[2] ^[3].
Stock rally: U.S. markets climbed to record highs. The S&P 500 closed around 6,891 and Nasdaq around 23,827 on Oct. 28 ^[4]. Tech and “Magnificent Seven” stocks led the gains (e.g. Nvidia +5%, Microsoft +2%) ^[5] ^[6]. Analysts note “the bulls remain fully in charge” ^[7] as AI optimism and Fed easing fuel the rally.
Mortgage rates: The average 30‑year fixed mortgage is still ~6.2%, roughly the same as a year ago ^[8]. Freddie Mac reported it fell to 6.19% for the week ended Oct. 23 ^[9] (down from ~7% in January), its lowest since late 2024. Mortgage demand is edging up – refinance apps rose 9.3% and purchase apps +4.5% in the latest MBA report ^[10] – but rates remain “stubbornly high” as buyers hold off ^[11] ^[12].
Housing slump: High borrowing costs have kept the housing market in a holding pattern. 2024 existing-home sales hit a nearly 30-year low, and 2025 sales remain weak ^[13]. Pending home sales are down ~1–2% vs. last year and the typical home now sits 48 days on market ^[14]. As NAHB chair Buddy Hughes notes, “most home buyers are still on the sidelines” ^[15] until rates drop further. However, with home-price growth slowing, affordability has improved slightly and NAR’s Lawrence Yun reports that falling mortgage rates are lifting home sales ^[16].
Yields & outlook: Long-term yields (10-year Treasury) hover near 4% – multi-month lows – but well above pre-pandemic levels ^[17] ^[18]. Economists warn that heavy U.S. debt issuance is keeping yields (and mortgages) elevated. AIER’s Paul Mueller aptly says “only Congress can rein in the spending that keeps long-term yields — and mortgage rates — stubbornly high” ^[19] ^[20]. Most forecasters expect Fed rate cuts in December (FedWatch >90% odds) ^[21], but only modest relief for borrowers – mortgage rates are likely to stay in the mid-6% range into 2026 ^[22]. Bright MLS economist Lisa Sturtevant cautions homebuyers: “the likely bet is [rates are] not going to fall much further” soon, and waiting for a dramatic drop may only mean “higher home prices without an improvement in mortgage rates” ^[23].

Fed’s Latest Move and Economic Context

At its Oct. 28–29 meeting, the Federal Reserve cut the federal funds rate by 0.25% to a 3.75–4.00% range ^[24], following a similar move in September. Fed officials, facing a softening job market and still-elevated inflation (~3% y/y), emphasized the need to tread carefully. Governor Christopher Waller and Boston Fed chief Susan Collins publicly backed further rate cuts, noting inflation risks have eased and unemployment is the bigger concern ^[25] ^[26]. In contrast, some Fed members (and JP Morgan economist Michael Feroli) want caution and will likely avoid promising future cuts ^[27] ^[28]. Powell’s communications will be key – he is expected to leave options open rather than guarantee another cut in December ^[29] ^[30].

The near certainty of an Oct. 29 cut (markets saw ~99% odds) ^[31] helped keep 10-year Treasury yields low (around 4%) ^[32]. But with most October data blacked out by the U.S. government shutdown, Fed officials and investors must rely on scant reports and private indicators. In fact, New York Fed research and ADP private payroll figures suggest the economy is weaker than official figures show. Powell and colleagues have highlighted labor-market cooling (average monthly job gains ≈29,000 in summer 2025 vs. pre-COVID ≈100,000) ^[33], reinforcing their willingness to ease policy despite inflation running above the 2% target.

Mortgage Rates and Housing Market Standoff

Despite the Fed’s easier stance, home loan rates have not plunged. Mortgages track the 10-year yield, which is pinned near 4% by heavy government borrowing ^[34]. For now, 30-year fixed rates hover just above 6%. Freddie Mac data show the average 30-year rate at 6.19% for the week ending Oct. 23 ^[35] – a drop from ~7% at the start of the year, but far above historic lows (3% in 2021). MBA chief economist Mike Fratantoni warns that, barring surprises, mortgage rates will remain above 6% in 2025, predicting only a slow descent ^[36]. Fannie Mae projects the 30-year rate at about 6.4% by end-2025 (falling below 6% only in late 2026) ^[37].

High rates have sharply cooled the housing market. U.S. existing-home sales in 2024 fell to a ~30-year low ^[38], and 2025 sales are tracking even lower. Buyers have largely paused: pending sales are down around 1–2% year-over-year ^[39] and many homes now sit unsold longer. Redfin finds the typical home takes 48 days to sell – the longest September wait since 2019 ^[40]. Homebuilder group NAHB’s chairman Buddy Hughes notes, “Most home buyers are still on the sidelines” ^[41], waiting for the “magic” sub-6% rate that they believe will finally draw them off the fence.

There are some early signs of relief. Mortgage applications ticked up: the MBA reported refinance apps +9.3% and purchase apps +4.5% for the week ended Oct. 24 ^[42]. Freddie Mac reports that higher inventory and slowing home-price growth, combined with those slightly lower rates, have “created a more favorable environment” for buyers ^[43]. The National Assoc. of Realtors (NAR) noted existing home sales in September rose at the fastest pace in seven months. NAR’s Lawrence Yun commented: “As anticipated, falling mortgage rates are lifting home sales,” adding that improved affordability is helping to drive demand ^[44].

However, credit conditions remain tight and prices are elevated. Realtor.com economist Jiayi Xu warns that with home prices and rates still outpacing incomes, buyer sentiment stays subdued ^[45]. In short, housing will likely stay sluggish until rates come down more. Pantheon Macroeconomics sees no significant rebound until mid-2026 given only gradual rate relief and persistent job market worries ^[46]. Buyers are advised to stay pragmatic: “get pre-approved right now” and be ready to act, but “don’t assume rates will keep falling,” cautions housing experts ^[47] ^[48].

Stock Market and Tech Boom

Equity investors have largely celebrated the Fed’s pivot. U.S. indexes hit fresh records: on Oct. 28 the Dow Jones (~47,706) and S&P 500 (~6,891) closed at all-time highs ^[49], with the Nasdaq Composite (~23,827) up 0.8% for the day. Tech and AI stocks have led the charge. Semiconductor and chip firms jumped on AI optimism: Nvidia soared ~5% after announcing new AI supercomputers for the U.S. government and $500+ billion in AI chip bookings ^[50] ^[51]. AMD leaped on Oracle’s AI GPU news ^[52], Qualcomm rallied ~11% on new AI data-center chips ^[53], and investors crowded into “Magnificent Seven” names ahead of big earnings. For example, Microsoft climbed ~2% on an OpenAI deal ^[54], and Boeing and Caterpillar saw healthy gains on strong guidance (Boeing +0.6%, Caterpillar +0.4% pre-market) ^[55] ^[56]. Treasury yields held near their lows, and even traditionally steady sectors joined in: banks like Morgan Stanley and BofA each jumped ~4–5% on robust earnings ^[57].

Market strategists highlight the extraordinary calm: “Volatility has been extraordinarily low… and you’re seeing a continued rally in risky assets,” said Subadra Rajappa of SocGen ^[58]. With inflation easing and tech profits surging, Rosenblatt’s Michael James observed “the bulls remain fully in charge” of Wall Street ^[59]. (Fed funds futures imply investors have almost fully priced in another 25bp cut in October and expect a follow-up cut in December ^[60] ^[61].)

Of course, not everyone is unreservedly bullish. Some Wall Street analysts warn of frothy valuations. Alphabet, Meta and other giants reported big earnings gains, but executives’ comments on AI spending will be scrutinized. AvaTrade’s Kate Leaman notes that after the earnings, “how far and how confidently the market can chase the AI story into 2026” will hinge on corporate outlooks ^[62]. A few Fed insiders have even drawn parallels to past bubbles (TSMC’s leaders likened the AI chip boom to the dot-com era) ^[63]. Thus, while stocks may run up further in the near term, risks – from valuations to unknown policy shifts – remain on the radar.

What Experts Are Saying

Economists and strategists paint a consistent picture: Fed easing + strong tech = higher stocks, but mortgage pains persist until inflation and deficits ease. Zillow’s senior economist Kara Ng notes that markets now see an October Fed cut as “near certain,” and she expects mortgage rates to “drift slightly lower” through 2026, settling in the 6–7% range ^[64]. Sam Khater (Freddie Mac) concurs that rates are off the year’s highs, making the buying environment more favorable, but he too sees only modest improvement ^[65] ^[66].

On the housing side, Lisa Sturtevant of Bright MLS cautions buyers to temper expectations: “Looking ahead… the likely bet is [mortgage rates] are not going to fall much further,” she says, warning that waiting for a big dip could leave buyers facing even higher prices with unchanged loan costs ^[67]. MBA’s Mike Fratantoni adds that, while many hope for sub-6% rates next year, the data don’t yet support a rapid drop ^[68].

Wall Street economists expect Fed cuts to continue – in fact, CME FedWatch shows roughly 95% odds of a cut on Oct. 29 and >90% for December ^[69]. JP Morgan’s Michael Feroli predicts the Fed will likely cut but remain careful about committing to a fixed path ^[70]. RiverFront’s Kevin Nicholson, however, recently warned the market may be “too optimistic” if it assumes cuts will keep coming unimpeded.

For investors, the consensus is to savor the rally but keep an eye on the “path forward.” Many analysts (e.g. Rosenblatt, Deutsche Bank) agree that without major policy surprises, equities can push higher on this momentum ^[71]. Pension funds and algos note the historic lows in bond yields (and even gold) are supporting risk assets ^[72]. But they’re also mindful that “lingering inflation concerns” in Fed minutes hint at caution ^[73]. In short: Stocks have been racing ahead on the Fed’s dovish pivot and AI hype, but skeptics remind us this party won’t last if economic data or central bank language shifts.

Bottom Line for Consumers

Homebuyers: The Fed’s cut should eventually ease borrowing costs, but don’t expect mortgage rates to plummet overnight. Current experts advise getting loan approval now and staying flexible – a modest rate dip (even toward 6%) may come by 2026, but a dramatic plunge below 6% is unlikely soon ^[74] ^[75]. Falling rates are helping more people buy (Yun’s quote ^[76]) and refinance, but affordability remains tight.

Investors: With Wall Street upbeat on dovish Fed policy and technology, equities may have further to run in the short term. However, caution is warranted. The Fed’s own signals (and rising deficits) imply that the current environment isn’t risk-free. For now, analysts say “the bulls remain in charge” ^[77] as long as AI and easing monetary policy drive earnings. Long term, watch inflation data and fiscal policy – if deficits remain large, bond yields (and mortgage rates) could stay higher than many hope, keeping a lid on consumer demand.

Outlook: Most forecasts see more Fed rate cuts ahead (likely December, and possibly beyond) ^[78]. Even with those cuts, mortgage rates are expected to hover in the mid-6% range through early 2026 ^[79]. Meanwhile, Wall Street’s momentum trade on tech and AI is expected to carry the market higher in the near term ^[80] ^[81]. But experts stress that without fiscal discipline (to tame deficits) and continued inflation declines, mortgage rates won’t drop enough to spark a quick housing rebound ^[82].

Sources: Latest Fed and market news from Reuters, CNN, CNBC and others; insights from industry groups (MBA, Freddie Mac, Zillow, NAR) and analysts ^[83] ^[84] ^[85] ^[86]. These reflect data and expert commentary current as of Oct. 29, 2025. All stock/index figures are as reported in recent market updates ^[87] ^[88].

Mortgage rates up after Fed rate cut

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References

Fed Cuts Rates, Stocks Soar — But U.S. Mortgage Rates Refuse to Budge