The Fed delivered its third consecutive 25 bp rate cut last week, lowering the fed funds target to roughly 3.50–3.75%. Chair Powell signaled the easing cycle is nearing its end, prompting markets to dial back expectations for 2026. Futures now imply about two cuts next year, with the first most likely in April.
Rates responded unevenly: the front end rallied, while longer maturities were largely unchanged, leaving the curve flat to modestly steepening—dovish short-term, hawkish long-term. Overnight SOFR remains close to fed funds, with one-month SOFR near 3.7%, pointing to mild but improving funding conditions.
A key development was the Fed’s announcement of $40 billion in Treasury bill purchases over coming months to smooth year-end repo and SOFR volatility. While not framed as QE, the move should help stabilize short-term funding markets.
Strategists broadly view the curve as fairly priced. Long-term rates appear sticky, while short-term rates remain more sensitive to Fed policy and labor market data. With markets still pricing slightly more easing than the Fed’s own projections, volatility is likely as investors weigh inflation versus employment risks.
Liquidity conditions remain orderly despite heavy dealer balance sheets and light agency issuance. Year-end effects may push funding rates modestly higher, but no systemic stress is evident.
Bottom line: The Fed is in a gradual, data-dependent easing phase. With liquidity set to thin into year-end and the curve continuing to steepen, borrowers may want to use this window to lock rates or add hedges, particularly for longer-term financing decisions.
Jake Tillman, Senior Analyst
Jake Tillman is a Senior Analyst, Capital Markets at Defease With Ease | Thirty Capital, bringing 5+ years of experience specializing in financial modeling, debt structuring, and risk analysis for CRE transactions. He supports the execution of financing strategies, including CMBS, as well as interest rate hedging and capital markets transactions. With expertise in cash flow modeling, credit risk assessment, and market analytics, he provides data-driven insights to optimize capital structures and manage interest rate exposure. Jake assists in scenario analysis, transaction execution, and risk assessments, ensuring alignment with market conditions and client objectives. His technical background includes financial modeling, Bloomberg analytics, and structured finance evaluation.
