The minutes from the Jan. 27-28 Federal Open Market Committee (FOMC) meeting indicate that the Trump administration’s ultimatum for Fannie Mae and Freddie Mac to bolster their mortgage investment portfolios has had a measurable impact on the financial markets.
The minutes also described the reasons behind the Federal Reserve’s decision not to change the federal funds rate following the meeting and noted that it expects to make one or two more rate cuts of 25 basis points the rest of the year, based on their assessment of market-based measures.
Examining market conditions
After evaluating the results of the “Open Market Desk Survey of Market Expectation,” the FOMC determined that respondents view the economy as “resilient,” lifting their expectations somewhat for gross domestic product growth with “little change” in their outlooks for personal consumption expenditures inflation and the unemployment rate, respectively.
The meeting’s minutes stated: “Near-term inflation compensation continued to decline amid lower-than-expected consumer price index readings, lower energy prices, and lower-than-anticipated pass-through of tariffs to customers; forward rates suggested that near-term inflation would stabilize close to current levels for the rest of the year.”
The committee noted little change in short-term Treasury yields as longer-term yields rose “a few basis points on net” and that “the Treasury curve steepened slightly as a result.”
“Model-based measures of short-term inflation expectations also declined some over the intermeeting period, with forward rates suggesting further modest declines over the course of this year,” the minutes further stated.
GSE ultimatum impacts MSB yields
The meeting minutes referenced President Donald Trump’s Jan. 8 Truth Social post directing the government-sponsored enterprises to purchase $200 billion in mortgage bonds as a means of reducing mortgage rates and easing the cost of homeownership. Federal Housing Finance Agency Director Bill Pulte later confirmed on X (formerly Twitter) that Fannie Mae and Freddie Mac would conduct the purchases as instructed.
The committee determined that the Trump administration’s ultimatum caught the financial market’s attention, leading to what it characterized as “a notable decline in mortgage-backed securities yields relative to those on comparable-maturity Treasury yields.” The committee further noted that “the decline was unlikely to result in a material increase in mortgage refinancing because current mortgage rates are well above the weighted average rate of outstanding mortgages.”
Consensus statement
The Fed unanimously voted to reaffirm its “Statement on Longer-Run Goals and Monetary Policy Strategy,” articulating its current approach to monetary policy determinations.
Often referred to as the Fed’s consensus statement, the agency issued a revised version in August 2025 and said it plans to revisit the statement approximately every five years to consider future revisions as needed.