If you’re betting on the Federal Reserve to continue the rate cut party, I have some bad news: Bank of America just poured cold water on that forecast.
In a new research note shared with me, analysts revealed an uncomfortable truth: With Jerome Powell at the helm until May, “relief” for consumers has already stalled. Despite the Fed’s easing late last year, the 10-year Treasury yield — which guides everything from mortgages to auto loans — is stubbornly near 4.2%. This disconnect between Wall Street’s “soft landing” hopes and Main Street’s lending reality has reached a breaking point.
Economists at the 121-year-old bank expect the Fed to leave interest rates unchanged at its Jan. 28 meeting and possibly for the rest of Powell’s tenure. This “pencil down” outlook is in line with the Fed’s own December dot plot, which indicated just one lone cut for 2026. This also reflects CME’s FedWatch tool, where traders have pushed out the odds of any real relief sooner rather than later.
It’s a gut punch for homebuyers hoping to close the affordability gap and families looking to refinance. The setup suggests we’ve already seen the final cut of the Powell era, with borrowers trapped in a “high-long-long” reality as the leadership transition begins.
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Bank of America’s tighter move on interest rates follows a December jobs report that essentially closed the door on a January cut.
“The key statistic is the U-rate is moving down 4.4%BofA analysts wrote. “This print will comfortably put the Fed on hold in January. We stand by our call that they will not cut again under Powell.”
2025 was a year of brutal contradictions for the Fed, operating under the dual mandate of low inflation and low unemployment. In my 30-year career, I have rarely seen these two goals compete so fiercely. President Trump’s tariffs contributed to the CPI climbing from 2.3% in April 2.7% by NovemberWhile unemployment peaked at 4.6% (revised to 4.5%) before the current decline.
The stress was palpable—and it probably cost Powell his job.
Concerned about fanning the flames of inflation, Powell stayed on the sidelines until September. While he has cut rates in the last three meetings of 2025, it appears to be too little, too late to secure re-nomination. His tenure is coming to an end 15 May 2026BofA economists believe the Fed is officially on hold.
More Federal Reserve:
“Prices have now been cut by less than half through April. That makes sense,” BofA noted. “With 75bp cuts on the books since September, it’s time to take a break.”
This pause is bad news for borrowers, as it suggests that the “parting gift” many are hoping for will not materialize. Instead, the market is already looking toward a successor like Powell Kevin Hassett or Kevin WarshWho may be more willing to step on the economic gas pedal — even with inflation still sticking around, that’s not a guaranteed win for homebuyers either.
The Fed’s three-quarter-point rate cut by the end of 2025 has lowered the Fed funds rate to a range of 3.5% to 3.75%. While the Fed does not directly set mortgage rates, the FFR affects Treasury yields which tend to follow mortgage (and other loan rates).
Historically, mortgage rates have averaged about 1.5% to 2% above the 10-year Treasury note yield. However, that spread has been stubbornly widened in 2025 as investors hesitate to buy Treasuries amid rising debt concerns. Quantitative tightening – where the Fed allowed mortgage-backed securities (MBS) to run off their balance sheets – only added to the pressure.
From 2023, the FFR has decreased by 1.75%, but mortgage rates have been slow to follow, falling from 7.76%. 6.16% as of January 8. But just as the Fed signaled it would move to the sidelines, a surprise “relief valve” emerged from the White House.
On January 8, President Trump announced that he had directed Fannie Mae and Freddie Mac to use them $200 billion in liquidity Buy MBS in the open market. The response was immediate: 30-year mortgage rates fell 6.06% on January 9This is the lowest level since 2023.
Bill Pulte, director of the Federal Housing Finance Agency (FHFA), confirmed the move on X, saying Fannie and Freddie have “sufficient liquidity” to execute. This policy effectively mirrors the Fed’s “Quantitative Easing” but on a smaller, more targeted scale. Treasury Secretary Scott Besant told Reuters the target was “consistent with the Fed”, which is letting MBS’s roughly $15 billion off its books each month.
“What’s happening is the Fed has about a $15 billion roll-off every month … I think the idea is consistent with the Fed, which is pushing the other way,” he said. Treasury Secretary Scott Besant
My thoughts: While the Powell-led Fed may be done with rate cuts by May, the White House is using the GSEs to build relief that the central bank won’t provide. For home buyers, that means mortgage rates could continue to slide even as the Fed remains on the sidelines.
Related: Fed Interest Rate Cut Bets Shift to January
This story was originally published by TheStreet on January 12, 2026, where it first appeared in the Fed section. Add TheStreet as a preferred source by clicking here.
