Mortgage Rates Today, December 4, 2025: Rates May Get More Volatile as Fed Rate Decision Nears. Or Possibly Not!

The bigger picture

Here's the theory. The Federal Reserve will pore over every economic report available while deciding next Wednesday whether to cut general interest rates or hold them steady. It will use the data to see whether the economy is more threatened by too-warm inflation (leave rates where they are) or by a struggling jobs market (cut rates).

Based on that, it was no surprise that mortgage rates fell moderately yesterday, reaching their lowest level since the closing days of October, according to ICanBuy. Yesterday's ADP employment report was much worse than expected, while the import price index, which measures an aspect of inflation, was slightly lower — and therefore better — than expected.

That made it more likely that the Fed will make a cut next week. Yay! Theory and practice are in harmony.

Except they weren't. If you pull up the MarketWatch U.S. 10 Year Treasury Note chart (select 5-day view), you'll see that most of the fall in yields occurred overnight, before either report was published. Mortgage rates tend to shadow yields on 10-year Treasury notes, as happened yesterday.

Indeed, yields on those notes rose soon after the reports were published, peaking at 10:40 a.m. and then gradually falling again. Talk about counterintuitive. It's as if markets completely ignored yesterday's economic data.

Headscratcher

The only explanation for this bizarre behavior we can think of is that markets are so convinced that a Fed rate cut is inevitable that they're shrugging off friendly and unfriendly data. In other words, they reckon the figures are irrelevant to what's already a foregone conclusion.

The numbers suggest that's the case. Overnight, the CME FedWatch tool showed an 89% chance of a cut next week. That's based on investors' purchases of Fed funds futures, which allow markets to effectively wager on the outcomes of Fed meetings, like a betting website but for professionals.

This makes us slightly nervous, even while we acknowledge that a cut is probably the more probable outcome. At the last meeting of the Fed's rate-setting committee, a majority thought a cut was likely this time.

But the split was 10-9, hardly a commanding majority. And at a news conference immediately after the meeting, Fed Chair Jerome Powell warned markets, "A further reduction in the policy rate at the December meeting is not a foregone conclusion — far from it."

Has enough changed since then to justify an 89% probability of a cut? We don't see it. And a disappointment on Dec. 10 could send mortgage rates sharply higher.

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What's coming up?

Although economic reports are usually the main drivers of changes to mortgage rates, they're not the only ones. The general mood in markets and economically consequential news can also affect those rates. News items concerning employment, inflation, tariffs and deficit funding are especially influential at the moment.

With the government reopening, we can anticipate the publication of official reports to slowly return to normal. Had the shutdown been brief, we could have expected a flood of official economic reports on reopening. But the length of the hiatus means that it is no longer the case. Data won't have been collected — let alone compiled and prepared for publication — during the shutdown. So, delayed or even canceled reports are inevitable.

This week

In its preview of this week, Comerica Bank's economics team says:

"The ISM PMI [purchasing managers' index] surveys are expected to show the manufacturing sector in continued contraction, while the services sector expands at a slower pace. Industrial production probably held steady while capacity utilization eased, in line with softer conditions in manufacturing. Personal incomes likely rose modestly in the delayed September release, while spending probably took a breather after rising robustly in August. Headline and core Personal Consumption Expenditures (PCE) Price Indices are forecast to have risen moderately, holding near 3% in annual terms. Consumer sentiment likely brightened in early December after the end of the government shutdown, while short-and long-term inflation expectations remained elevated."

Mortgage rates today

There is just one economic report on today's MarketWatch economic calendar. It's the weekly jobless figures (the number of initial claims for unemployment benefits) during the seven days ending on Nov. 29.

We'd usually say that markets see weekly figures as too "noisy" (volatile) to take seriously, but that they may take notice this week because of the shortage of other employment data and the proximity of the next Fed meeting. However, if our hypothesis (above) is correct, it may not matter what this or other reports between now and Wednesday say.

Markets expect today's report to show 220,000 initial jobless claims, a little higher than the previous week's 216,000.

Normally, worse-than-expected economic news tends to push mortgage rates lower, while better-than-expected figures usually send
them upward. Inflation data and the unemployment rate are exceptions, and typically act in the opposite way.

Tomorrow

We're due the Fed's favorite gauge of inflation tomorrow, the personal consumption expenditures (PCE) price index. However, owing to the government shutdown, this is September's report and therefore pretty stale.

Also on tomorrow's schedule is the first reading of consumer sentiment in December, which is about as fresh as you can get.