Fed rate cut brings lower credit card costs while mortgage relief lags

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• Expects only one more rate cut — another quarter point cut — in the first half of 2026

  80% confidence

• Mortgage rates will decline slightly, on balance, over the next year, but it could be a bumpy ride

  80% confidence

• Expects the Fed to cut short-term interest rates three more times in the first six months of 2026, each cut likely to be a quarter point

  80% confidence

• 2026 could be a volatile year for mortgage rates

  80% confidence

• The Fed's rate cuts should result in lower credit card and home equity loan rates, as well as lower borrowing costs for small businesses that borrow from banks at the prime rate

  80% confidence

• Consumption growth was weak in September, the last month of available data

  80% confidence

• Does not see the unemployment rate spiking in 2026

  80% confidence

• Prices for some goods could go higher in 2026 once the full impact of higher tariffs is felt next year

  80% confidence

• Mortgage rates are the most interesting and difficult to predict

  80% confidence

• Job growth has come to a standstill and the unemployment rate, while still low, is steadily rising

  80% confidence

• Most trade across the three countries continues to face zero tariffs, underscoring the ongoing importance of the agreement

  80% confidence

• The Fed desperately wants to avoid a recession, as it would be blamed for it, which would significantly threaten its independence

  80% confidence

• Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments.

  80% confidence

• If worries intensify about job losses and a possible recession, rates would fall further — but it wouldn't be a great time to buy a house

  80% confidence

• The U-M economics team is projecting two rate cuts in 2026, two cuts of 25 basis points each, tentatively penciled in for Fed meetings in March and June

  80% confidence

• The well-to-do are doing the bulk of the spending, fueled by the surge in the value of their AI stock holdings

  80% confidence

• Labor market data since the last Fed meeting indicated a continued trend of gradual softening in the labor market

  80% confidence

• Average new car loan rates being promoted by lenders could fall slightly below 7% in 2026

  80% confidence

• Michigan's economy will benefit most directly from more auto sales and production, but this is a small lift, as the Fed is widely expected to cut rates, so this is already reflected in borrowing costs and stock and other asset values

  80% confidence

• Puts the odds of a U.S. recession at around 20%, which is relatively low

  80% confidence

• Mortgage rates are forecast to average 6.3% in 2026, easing affordability pressures slightly, while home prices rise by 2.2%

  80% confidence

• Middle and lower-income households, who don't have significant stock portfolios face making payments on their debt, are struggling to maintain their spending

  80% confidence

• The partial data that we have so far for the current quarter are mixed. Vehicle sales retreated in October and edged up in November. Johnson Redbook same store sales appear to be holding up. Consumer sentiment remains downbeat, though.

  80% confidence

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