11/3/25 REcap: Rates Rise as December Rate Cut Becomes Uncertain

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Powell Needs Data Before The Next Rate Cut

Mortgage rates ticked higher this week after Fed Chair Jerome Powell made it clear that a December rate cut is far from guaranteed. In his post-meeting press conference, Powell said inflation has cooled but remains uneven, and the Fed “needs to see more good data” before easing again. The problem is, the central bank doesn’t have much data to go on — the ongoing government shutdown has delayed key economic reports. Powell admitted the Fed is “flying blind,” likening the situation to driving in fog and being forced to slow down. Without updated labor and inflation data, policymakers simply can’t gauge whether the economy is softening fast enough to justify another cut.

That uncertainty has rippled through markets. Investors who had been pricing in back-to-back cuts quickly dialed back expectations, sending Treasury yields and mortgage rates higher. The 10-year yield rose on the idea that the Fed may pause longer than expected, even as parts of the economy — especially housing — show growing signs of strain. The result was a short-term jump in borrowing costs for homebuyers just as confidence had been returning to the market.

Powell also faced questions about recent credit concerns after JPMorgan CEO Jamie Dimon warned of “cockroaches in the financial system” tied to subprime auto loans. Powell said the Fed is “paying close attention” but doesn’t view those losses as a “broader credit issue.” Meanwhile, Powell acknowledged that housing is “weak but stabilizing,” and that housing services inflation — one of the stickiest components of core inflation — has finally started to come down. After being stubbornly high for nearly two years, rent and shelter costs are now easing and are expected to continue declining through year-end, giving the Fed some relief on the inflation front.

For now, that means the Fed’s focus remains squarely on inflation and growth data — two things it currently can’t fully see. Until Washington reopens and those reports start flowing again, the Fed is stuck in cautious mode, and so are mortgage rates.

The China-US Trade Deal 

President Trump and China’s President Xi announced a new trade deal this week — the biggest breakthrough in U.S.–China relations in years. The agreement lifts China’s export bans on key materials like rare earth minerals used in electronics, batteries, and semiconductors, and restarts large purchases of American farm goods like soybeans and corn. Both countries will also roll back some tariffs, easing tensions that had been adding pressure to prices and supply chains for years.

This is good news for inflation. With cheaper access to materials and smoother trade flows, manufacturing costs should start to come down — especially for things like cars, phones, and clean energy equipment. Food prices could also cool a bit as China’s renewed demand helps stabilize global crop markets. It won’t happen overnight, but the deal gives the economy one less reason for prices to keep rising.

Still, economists warn that the deal’s one-year time limit means any inflation relief could be temporary. The agreement will need strict enforcement to hold, and political frictions remain high. But for now, the truce adds a welcome tailwind to the global disinflation trend — a development the Federal Reserve will be watching closely as it weighs whether inflation is cooling fast enough to justify rate cuts in 2026.

Looking Ahead: What will happen in December?

Before the Fed meeting last week, there was a 100% chance of another rate cut, but now, there's just 70% chance. That drop in probability is what caused the spike in rates.

Fed Governor Christopher Waller, one of the favorites to be the next Fed president, said on Friday that he believes the data supports another reduction in December. Waller pointed to a weakening labor market and confidence that inflation will “continue to come down” as reasons to ease policy further. 

Meanwhile, Dallas Fed President Lorie Logan, Cleveland’s Beth Hammack, and Kansas City’s Jeff Schmid all said they opposed the most recent rate cut in October, arguing that inflation is still too high to justify lowering rates again, so they are surely going to be against future rate cuts as well.

Remember - it's not necessarily what the Fed does that moves rates, but what the market believes the Fed will do. Right now, there's no telling what the Fed's next move will be.

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