Cut, But Not Dry

[Andrew Postell]

Yesterday, the Fed cut rates by 25 bps to 3.50%–3.75%, as expected, but added cautious guidance, a split vote, and plans to buy $40B in Treasury bills over the next month. While the statement and projections signaled restraint for 2026, the liquidity boost and Powell’s flexible tone helped ease market concerns.

Markets read the mix as hawkish words, dovish mechanics: the front end outperformed, Treasuries rallied, and mortgages firmed—up 6–11 ticks into the close. Retail rates reflected the move, with the 30‑yr fixed averaging around 6.22% by day’s end; notably, pricing improved on the presser rather than the cut itself as Powell emphasized labor‑market risks and kept the door open to data‑driven easing.

For housing and MBS, the near‑term setup is constructive but measured: spreads remain wider than historical norms, implying room to tighten that could pull retail rates toward the 6% zone if basis compresses, while mortgages apps have shown incremental life into year‑end, up 4.8% at last temperature check. MBS are up 3+ from yesterday’s close.

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