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Plausible Pause

The media tried to pull Federal Reserve Chair Jerome Powell into the politically hairy topics — including the possibility of him staying on the Fed’s Board of Governors after his chairmanship ends — but he stayed firm in his refusal to comment. No fighting words or juicy headlines to be found here (sigh).

However, there are always some nuggets of excitement on Fed day (more on that later). First, the basics: Officials kept rates unchanged for the first time since their meeting in July. No surprise, given markets had priced in a near-zero probability of a rate cut.

The stock market wasn’t surprised either, with all three of the major large-cap indices remaining relatively flat for the afternoon. Of course, stocks are always top of mind for investors, but the story they need to pay close attention to this year is bond yields.

Once again, the 10-year Treasury yield saw swings after the Fed statement, but ended the day very close to where it began. Sounds like no big deal, but when you consider that the yield is more than 25 basis points above where it was in late October, two rate cuts ago, it appears to be responsive to everything but the Fed.

Moreover, inflation expectations (shown below with the 10-year breakeven rate) have risen year-to-date — not to concerning levels — but higher nevertheless.

While this chart suggests markets aren’t convinced that inflation won’t rear its ugly head again, Powell seemed relatively unbothered by inflationary forces and even pointed out that long-term expectations are still consistent with achieving the Fed’s 2% target over time.

There’s no way to know who will end up being correct, but this remains a sticking point in markets and something that may drive hotter debates as the year goes on.

Business as Usual

In other parts of the market, investors seemed to operate as if nothing had happened at all. Gold had another stellar day — which lately puts it in the camp of “business as usual” — reaching almost $5,400/oz as of Wednesday evening. Meanwhile, small-cap stocks have been more or less flat over the last handful of trading days.

When Powell was asked about the major moves in gold and silver, he said not to take much macroeconomic messaging from them. That may be true (neither of these metals seem to be closely tied to macro forces right now), but there is certainly some message to be found. Perhaps it’s partly momentum and partly inflation concerns, but given the big gains today could it also be a sign of continued fears over Fed independence? Regardless of the main driver on any given day, investors just can’t get enough gold.

As for small-caps, for a long time the theory was they’d do well because the Fed was lowering rates… But markets don’t expect another rate cut until June or July and yet small-caps have outperformed large-caps by 500 basis points year-to-date.

Despite no changes from the Fed today and a market that has had to digest the idea of fewer rate cuts than it originally thought, small-caps have done just fine and operated in “business as usual” mode on Fed day.

Define Plausible?

The last nugget from today: Powell’s statement that the fed funds rate is currently “within a range of plausible estimates of neutral.” In other words, we’re close to finding our stopping point.

I’m surprised market pricing didn’t move more in reaction, to price out more future cuts. In any event, this signal that the Fed is close to or at neutral is an important one for investors. We’ve been relying on monetary policy to either drive or support stock prices for a long time, and we may now be in a phase where stocks will have to get by without continued rate cut expectations. I believe stocks can do just fine without many more cuts, but I’m just one person and many others may disagree. Markets will be the final judge.

Want more insights from Liz? The Important Part: Investing With Liz Thomas, a podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.

photo credit: iStock/MicroStockHub

SoFi can’t guarantee future financial performance, and past performance is no indication of future success. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.

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This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.

If you’ve been waiting for an opening in the U.S. housing market, here’s an encouraging milestone you could have easily missed: Mortgage rates have reached a three-year low.

When the Federal Reserve resumed cutting its benchmark interest rate late last summer, 30-year mortgage rates that had been stuck in the mid-to-high 6% range for nearly a year were shaken loose. But it’s been a subtle downward crawl ever since. It wasn’t until this month (the week ending Jan. 15,) that the average hit 6.06% — the lowest for any week since September 2022, according to data from the big mortgage backer Freddie Mac.

Of course, if you’re looking to buy a house, the question is: Will rates keep dropping?

While this is just an average, we could be close to the floor for the next couple of years: A Jan. 13 projection from Fannie Mae, the other big mortgage financier, assumes rates will be stuck at 6.0% through 2027. And economists at the Mortgage Bankers Association predict rates will even go back up a bit next year, to 6.3%.

That said, mortgage rates can be hard to predict. Mortgages are bundled and sold to investors as bonds, so the interest rates borrowers pay are influenced not just by the Federal Reserve and lenders, but by the investors who buy those bonds.

That’s why President Trump recently directed Fannie and Freddie, which do a lot of the bundling, to buy $200 billion of their own mortgage bonds. The purchases, aimed at lower borrowing costs, could reduce rates by 10 to 15 basis points, according to Redfin economists.

So what?

When and if to buy a house often comes down to the math. And if you’re borrowing the money, mortgage rates are a big part of the equation.

A 6% 30-year loan would mean a monthly payment of roughly $1,920 on a $400,000 house, assuming a 20% down payment. While that’s not the $1,350 you would have paid when rates were 3% in 2020 and 2021, it’s also not the $2,300 you would have paid when they were 7.79% — the post-pandemic high.

Of course, the price on the house itself is another huge factor, and while wages are expected to rise more than property prices this year, some economists say it could take five years for them to fully normalize following their pandemic spike.

The bottom line: The housing market continues to be prohibitively expensive for many buyers, especially for first-timers who don’t own anything to trade up with. But as conditions improve, the question will be, increasingly, should they keep holding out — or is this as good as it’s going to get in 2026?

Related Reading

Want to Buy a House in the First Half of 2026? Follow These Crucial Steps (Yahoo)

Americans Hit the Brakes on Driving—and It Could Shift the Housing Market in Reverse (Realtor.com)

Why America Stopped Building the ‘Starter Home’ (The Washington Post via MSN)

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