Fed Interest Rate Meeting Begins as Policymakers Consider Pausing Cuts

Federal Reserve policymakers began their two-day meeting on interest rate policy Tuesday with political drama surrounding the central bank amid President Donald Trump's pressure campaign for lower rates.

Fed Chair Jerome Powell and other members of the Federal Open Market Committee will cast their votes Wednesday, with the majority of the 12 members expected to support leaving the benchmark rate unchanged at its current range of 3.5% to 3.75%.

Still, dissenting votes are all but certain, and the final tally will reveal the strength of the "hawkish" faction favoring higher rates and of their "dovish" counterparts on the reconstituted panel, which gained four new voters at the start of the year.

The meeting comes at a time of extraordinary political turmoil for the Fed. Powell in recent weeks revealed that he is under criminal investigation by Trump's Justice Department, calling the probe an intimidation tactic to force lower interest rates.

Meanwhile, the Supreme Court recently heard arguments in Trump's attempt to fire Fed Gov. Lisa Cook over allegations of mortgage fraud, with even conservative justices sharply questioning the administration's handling of the matter.

Powell for his part has vowed to carry out his duties "without political fear or favor" and to make interest rate decisions based solely on the Fed's dual mandate of price stability and maximum employment.

"Public service sometimes requires standing firm in the face of threats," he said in a recent statement.

Pause in rate cuts seen as virtual certainty

After three consecutive rate cuts in September, October, and December, the Fed is now widely expected to stand pat in January.

As of Monday, financial markets estimated a 97% probability that the Fed will leave its benchmark interest rate unchanged Wednesday, according to CME FedWatch.

Likewise, prediction marketplaces Kalshi and Polymarket both estimate a 99% chance that the FOMC will make no change to the policy rate.

"Expectations of a pause in the rate-cutting cycle are now nearly universal," says Bankrate Financial Analyst Stephen Kates. "After three consecutive rate cuts and growing dissent among voting members, the upcoming meeting gives the committee an opportunity to reset expectations and deliberately lay the groundwork for monetary policy in 2026."

It comes after eight members of the FOMC made comments indicating that they either lean toward a pause or outright oppose a rate cut at the January meeting, with only three members seen as likely to support a rate cut.

Powell himself has delivered no public commentary about his economic outlook or monetary views since the last FOMC meeting, perhaps preserving his neutrality to better broker between the competing factions on the panel.

The Fed uses higher interest rates to fight inflation, and lower rates to stimulate the job market, in line with its dual mandate of price stability and maximum employment.

"After three cuts in 2025, the Fed is no longer firmly restrictive," says Realtor.com® senior economist Jake Krimmel. "It is closer to neutral, which naturally raises the bar for additional easing and sets the stage for a pause." 

What a rate pause means for mortgage rates

The Fed does not control mortgage rates, and instead sets the short-term rates used for overnight lending between commercial banks. However, expectations about Fed policy and future inflation can influence the markets that determine mortgage rates.

Average 30-year fixed mortgage rates reached a three-year low of 6.06% earlier this month, after Trump announced plans for Fannie Mae and Freddie Mac to increase purchases of mortgage bonds.

But mortgage rates rose again amid tension over Trump's threat to annex Greenland, climbing to 6.09% last week.

"Mortgage rates have been volatile in the past week even with the Fed expected to stand pat," says Krimmel, calling it "a reminder that the Fed’s influence over mortgage rates is limited."

Kates says that even in the unlikely event the Fed cuts its short-term rate Wednesday, mortgage rates wouldn't necessarily drop.

"The narrowing spread between mortgage rates and the 10-year Treasury yield has driven most of the decline in mortgage rates throughout 2025. Without direct government intervention to compress that spread further, mortgage rates are unlikely to fall unless long-term Treasury yields move lower," the analyst said.

Kates noted that ongoing concerns about federal deficits, foreign ownership of U.S. debt, and persistent inflation "are likely to keep those yields elevated for the foreseeable future.”

The Realtor.com economics team projects that mortgage rates will average around 6.3% through 2026, delivering modest affordability relief to homebuyers.

"The year 2025 closed as the weakest existing-home sales year since the mid-1990s, and early indicators suggest a cautious start to 2026," says Krimmel. "However, easing lock-in effects, expected mortgage rate stabilization, and income growth point to gradual affordability improvements as 2026 unfolds."