Week Of: November 3rd, 2025

10-31-25 10:36am With the lack of major economic data due to the government shutdown, investors turned their attention to other areas, particularly the Fed meeting on Wednesday. While the Fed made the anticipated rate cut, comments from Chair Powell were negative for mortgage markets. The US and China reached a trade deal for a year which avoided a threatened increase in tariffs, but it caused little reaction. As a result, mortgage rates ended the week a bit higher, up from their lowest levels of the year.

As expected, the Fed reduced the federal funds rate by 25 basis points to a range of 3.75% to 4.00%. There were no significant surprises in the meeting statement, which noted the high level of uncertainty in the economic outlook due to government policy changes and the lack of economic data during the shutdown. The big news came during the press conference after the meeting. Investors had been pricing in a roughly 90% chance of an additional 25 basis point rate reduction at the next meeting in December, so they were caught completely off guard when Fed Chair Powell said that another rate cut is far from a sure thing, with "strongly differing views" among officials about how to proceed.

While it was widely anticipated, another policy change also was notable. The Fed maintains an enormous portfolio of bonds so that banks will have access to liquidity to help the economy run smoothly. To boost the economy during the pandemic, the Fed more than doubled its holdings of Treasuries and mortgage-backed securities. Since 2022, it has been gradually returning to more normal levels by letting maturing securities roll off its balance sheet without replacing them. According to Powell, the current portfolio of roughly $6.6 trillion is likely the appropriate size based on economic conditions. As a result, the Fed will resume purchasing bonds to replace maturing ones, although the mix of securities may shift over time.

The latest confidence survey published by the Conference Board revealed that consumers are concerned about the impact of higher tariffs and the government shutdown. In October, the index dropped to the lowest level since the new tariffs in April. The decline was steepest among younger and lower-income consumers. In particular, the outlook for future labor market conditions weakened.

It was another good week for mortgage applications, especially for refinancings, according to the Mortgage Bankers Association (MBA). Applications to refinance rose 9% from last week and were a massive 111% higher than one year ago. Purchase applications increased 5% from the prior week and were up 20% from last year at this time.

Looking ahead, investors will continue to watch for additional information about tariffs and monitor comments from Fed officials for hints about monetary policy later in the year. With the government shutdown, it likely will be another light week for major economic data. The ISM national manufacturing sector index will be released on Monday and the services sector index on Wednesday. The key Employment report is scheduled for Friday, but it is expected to be delayed.

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