Freddie Mac 30Y fixed-rate mortgage average below 5.75% in 2026?

The Fed projects a 2.5 percent long-run Federal Funds Rate. The Federal Reserve's December 2025 Summary of Economic Projections (SEP) indicates that the median long-run projection for the Federal Funds Rate is 2.5 percent. This figure, derived from the Federal Reserve's December 10, 2025, FOMC Projections materials, represents the "longer run" outlook for the key interest rate ^{[^]}.

This projection reflects FOMC participants' monetary policy assessments. This long-term projection is a reflection of the individual assessments made by Federal Open Market Committee (FOMC) participants regarding the appropriate monetary policy stance over an extended period. It is frequently referred to as the neutral nominal federal funds rate ^{[^]}. Fundamentally, this estimated rate aims to be consistent over time with both maximum sustainable employment and price stability within the economy ^{[^]}.

Financial institutions closely monitor Federal Reserve's economic projections. Data included in the Summary of Economic Projections, such as the 'dot plot' and the aggregated median, are regularly published by the Federal Reserve. These projections are closely monitored and tracked by various financial institutions and research organizations for their insights into future monetary policy ^{[^]}.

The Mortgage Bankers Association (MBA) forecasts a stable 2.1% mortgage-Treasury spread for H2 2025. In its September 2025 forecast commentary, the MBA projects a consistent spread between the 30-year fixed mortgage rate and the 10-year Treasury yield for the second half of 2025. For the third quarter of 2025, the MBA anticipates the 30-year fixed mortgage rate at 6.2% and the 10-year Treasury yield at 4.1%, resulting in a spread of 2.1%. For the fourth quarter of 2025, the MBA projects the 30-year fixed mortgage rate to be 6.1% and the 10-year Treasury yield at 4.0%, maintaining the spread at 2.1% ^{[^]}.

Fannie Mae also projects a consistent 2.1% spread for the latter half of 2025. Its October 2025 economic forecast provides identical spread projections for the second half of 2025. Fannie Mae expects the 30-year fixed mortgage rate to average 6.0% and the 10-year Treasury yield to average 3.9% in the third quarter of 2025, yielding a spread of 2.1%. For the fourth quarter of 2025, their forecast includes a 30-year fixed mortgage rate of 5.9% and a 10-year Treasury yield of 3.8%, also resulting in a spread of 2.1% ^{[^]}.

Both organizations align on a consistent 2.1% spread for H2 2025. Based on their respective H2 2025 forecasts, both the MBA and Fannie Mae project that the spread between the 30-year fixed mortgage rate and the 10-year Treasury yield will stabilize at 2.1% through the second half of 2025 ^{[^]}.

The 5-Year, 5-Year Forward Inflation Expectation Rate lacks Q1 2026 data. The 5-Year, 5-Year Forward Inflation Expectation Rate (T5YIFR or T5YIFRM) is a key metric derived from Treasury Inflation-Protected Securities (TIPS) that indicates what market participants expect inflation to be, on average, over the five-year period starting five years from now ^{[^]}, ^{[^]}, ^{[^]}. While various sources offer detailed historical series for this rate ^{[^]}, ^{[^]}, ^{[^]}, ^{[^]}, ^{[^]}, they do not contain specific prevailing data or forecasts for Q1 2026. Therefore, a definitive statement about its exact level during that future quarter cannot be made based on the available information.

The Federal Reserve targets 2% inflation, which this rate typically aligns with. The Federal Reserve's explicit long-run target for inflation, as measured by the personal consumption expenditures (PCE) price index, is 2%. The 5-Year, 5-Year Forward Inflation Expectation Rate serves as an indicator of whether market participants believe inflation will trend above or below this target over the longer term. Historically, this rate has often moved in a range generally centered around or slightly above the Federal Reserve's 2% target, indicating that market expectations typically align with the Fed's ability to achieve its inflation goal in the long run. For example, recent observations of the 5-Year, 5-Year Forward Inflation Expectation Rate have shown it generally hovering around 2.2% to 2.4% ^{[^]}, ^{[^]}, suggesting expectations are broadly consistent with or slightly above the target. Without specific data or explicit forecasts for Q1 2026, it is not possible to state definitively whether the rate will be trending above or below the Federal Reserve's 2% target during that period, as the actual level will depend on economic conditions, monetary policy decisions, and market sentiment prevailing at that time.

Throughout 2025, the FOMC demonstrated a clear intent to alter balance sheet runoff. The Federal Open Market Committee indicated a progression toward changing the pace of the balance sheet runoff throughout the year. By March 19, 2025, the Federal Reserve had signaled its intention to slow the overall balance sheet runoff process ^{[^]}. Internal discussions among FOMC members regarding the precise timing and details of such a slowdown were noted in April ^{[^]}. This intention culminated in a definitive plan to conclude the contraction phase entirely, with the Federal Reserve announcing on October 29, 2025, that it would wind down its balance sheet reduction efforts, effective December 1, 2025 ^{[^]}. This decision was communicated through various channels, including FOMC minutes ^{[^]} and a press conference ^{[^]}, influenced by considerations like tightening money markets ^{[^]}.

A significant policy shift for Mortgage-Backed Securities (MBS) was announced. The comprehensive plan, communicated on October 29, 2025, outlined a notable change specifically impacting MBS. A statement from the Federal Reserve Bank of New York on that date, titled 'Statement Regarding Reinvestment of Principal Payments from Treasury Securities and Agency Securities,' detailed an updated policy directly applicable to MBS, which are categorized as Agency Securities ^{[^]}. This announcement indicated a departure from the passive runoff approach for MBS, signaling an intention to either fully or partially reinvest these principal payments. Such reinvestment would effectively slow or halt the reduction of the Fed's MBS holdings ^{[^]}. This policy change aligns with the broader decision to end the overall balance sheet reduction by December 1, 2025 ^{[^]}, thereby stopping the active runoff of MBS from that date forward.

Major bank forecasts show varying U.S. recession probabilities for late 2025/H1 2026. Goldman Sachs increased its U.S. recession odds to 25% for March 2026 ^{[^]}, up from a 20% projection in January 2026 ^{[^]}. Despite these adjustments, Goldman Sachs CEO David Solomon stated in April 2026 that there is a "low US recession risk for 2026," citing the economy's resilience ^{[^]}.

Other forecasts lack specific probabilities; the yield curve is a general indicator. While J.P. Morgan published a "2026 Market Outlook" ^{[^]}, the research did not detail specific recession probability figures from them for the late 2025 or H1 2026 timeframe. The Treasury yield curve, particularly the 10-Year minus 3-Month (10Y-3M) spread, serves as a recognized indicator for future economic downturns ^{[^]}. Historically, an inversion of this spread has often preceded U.S. recessions, and models such as the NY Fed Recession Probability Model utilize it for forecasting ^{[^]}. However, the provided research does not offer a direct, specific probability assignment from the yield curve for a recession beginning in late 2025 or H1 2026.

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