Mortgages and Fed the next move

Boston Condos for Sale and Apartments for Rent

Mortgages and Fed the next move

The Federal Reserve (the Fed) meets this week, and expectations are high that they’ll cut the Federal Funds Rate. But does that mean mortgage rates will drop? Let’s clear up the confusion.

The Fed Doesn’t Directly Set Mortgage Rates

Right now, all eyes are on the Fed. Most economists expect they’ll cut the Federal Funds Rate at their mid-September meeting to try to head off a potential recession.

According to the CME FedWatch Tool, markets are already betting on it. There’s virtually a 100% chance of a September cut. And based on what we know now, there’s about a 92% chance it’ll be a small cut (25 basis points) and an 8% chance it will be a bigger cut (50 basis points):

So, what exactly is the Federal Funds Rate? It’s the short-term interest rate banks charge each other. It impacts borrowing costs across the economy, but it’s not the same thing as mortgage rates. Still, the Fed’s actions can shape the direction mortgage rates take next.

Why Markets Already Saw This Cut Coming

Here’s the part that may surprise you. Mortgage rates tend to respond to what the financial markets think the Fed will do, before the Fed officially acts. Basically, when markets anticipate a Fed cut, that outlook gets priced into mortgage rates ahead of time.

That’s exactly what happened after weaker-than-expected jobs reports on August 1 and September 5. Each time, mortgage rates ticked down as financial markets grew more confident a cut was coming soon. And even though inflation rose slightly in the latest CPI report, the Fed is still expected to make a cut.

So, if the Fed goes with a 25-basis point cut, as expected, that’s likely already baked in to current mortgage rates, and we may not see a dramatic drop.

But if they go bigger and drop their Federal Funds Rate by 50 basis points instead, mortgage rates could come down more than they already have.

So, Where Do Mortgage Rates Go from Here?

While the upcoming cut may not move the needle much, many experts expect the Fed could cut the Federal Funds Rate more than once before the end of the year. Of course, that’s if the economy continues to cool (see graph below):

As Sam Williamson, Senior Economist at First American, explains:

“For mortgage rates, investor confidence in a forthcoming rate-cutting cycle could help push borrowing costs lower in the back half of 2025, offering some relief to housing affordability and potentially helping to boost buyer demand and overall market activity.”

If multiple rate cuts happen, or even if markets just believe they will, mortgage rates could ease further in the months ahead. But here’s the catch – all of this depends on how the economy evolves. Surprise inflation data or unexpected shifts could quickly change the outlook.

Boston Condos for Sale and the Bottom Line

Mortgage rates likely won’t drop sharply overnight, and they won’t mirror the Fed’s moves one-for-one. But if the Fed begins a rate-cutting cycle, and markets continue to expect it, mortgage rates could trend lower later this year and into 2026.

If you’ve been waiting and watching the housing market, now’s the time to talk strategy. Even small changes in rates can make a meaningful difference in affordability, and understanding what’s ahead helps you make the best decision for your situation.

Mortgages and Fed the next move

The Federal Reserve held interest rates steady at the end of its two-day meeting.

The Fed’s decision to remain on the sidelines still has far-reaching implications for almost all forms of borrowing as well as the returns you earn on your savings.

From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how your wallet is impacted.

The average for a 30-year fixed mortgage is 6.83% today, up 0.07% over the last week. The average rate for a 15-year fixed mortgage is 6.01%, which is an increase of 0.09% from the same time last week.

CNBC Fed Survey:

Respondents confident Fed will cut interest rates this year.

The Federal Reserve announced Wednesday it will leave interest rates unchanged amid higher prices from President Donald Trump’s tariff policies and weakening economic growth.

Federal Reserve Chair Jerome Powell “is sitting on a hornet’s nest of headaches — in that situation, he is going to hold tight,” said Brian Bethune, an economist and professor at Boston College.

Largely because of mixed economic signals and the United States’ changing tariff agenda, uncertainty is “off the charts,” Bethune said. “We are as close to a ‘black swan’ policy shock as you can get.”

With the Fed holding rates steady for now, consumers struggling under the weight of high prices and high borrowing costs aren’t getting much relief, experts say.

The federal funds rate sets what banks charge each other for overnight lending, but also has a domino effect on almost all of the borrowing and savings rates Americans see every day.

When the Fed hiked rates in 2022 and 2023, the interest rates on most consumer loans quickly followed suit. Even though the central bank lowered its benchmark rate three times in 2024, those consumer rates are still elevated, and are mostly staying high, for now.

Mortgages
Mortgage rates don’t directly track the Fed, but are largely tied to Treasury yields and the economy. As a result, uncertainty over tariffs and worries about a possible recession are dragging those rates down slightly.

The average rate for a 30-year, fixed-rate mortgage is 6.91% as of May 6, while the 15-year, fixed-rate is 6.22%, according to Mortgage News Daily.

But for potential home buyers, that’s not enough of a decline to give the housing market a boost. “Many borrowers (Potential Sellers) are reluctant to take on a loan (mortgage) at today’s rates, particularly if they currently have a loan at a significantly lower rate,”