Federal Reserve policymakers voted to cut the benchmark rate by 25 basis points, or a quarter-point, at the central bank’s Sept. 16-17 meeting, as expected. The decision comes on the heels of economic reports showing a widespread slowdown in the labor market and dwindling consumer sentiment.
Many prospective homebuyers (as well as homeowners looking to refinance) have been hoping that the Fed’s move would lead to lower interest rates on mortgages. Some consumers are under the impression that they should even wait to lock in a mortgage rate until after the rate cuts because mortgage rates will decline further.
That may be unwise: “The Fed cut will not cause mortgage rates to change,” says Melissa Cohn, regional vice president of lender and broker William Raveis Mortgage, in a statement.
Here’s why mortgage rates are unlikely to fall as a result of the most recent Fed rate cut.
[Read: Best Mortgage Lenders]
Fed Cuts Don’t Mean Lower Mortgage Rates
The Federal Reserve doesn’t set mortgage rates — mortgage lenders do. And a lower federal funds rate doesn’t necessarily mean mortgage rates will fall — just look at how 30-year rates reacted to Fed rate cuts just one year ago.
Before the central bank began cutting rates in September 2024, interest rates on 30-year mortgages had already fallen from over 7% to about 6%. It was only after the Fed began cutting rates that mortgage rates trended higher once again. However, mortgage rates didn’t rise because of the Fed’s policy. At this same time last year, markets were responding to relatively strong employment reports as well as the 2024 election. Mortgage rates continued to move higher through early 2025 as President Donald Trump announced far-reaching tariffs, which are generally believed to increase inflation.
Over the past two months, mortgage rates have been trending downward once again. Not because of the Fed, but because recent employment numbers from the U.S. Bureau of Labor Statistics have shown that job growth is stagnant and the U.S. economy added nearly 1 million fewer jobs than previously thought between March 2024 and 2025.
Generally, interest rates on long-term borrowing products like mortgages tend to be lower in times of economic distress and higher when the economy is strong.
Economists Say Price Cuts Are ‘Priced In’
Another reason mortgage rates don’t react directly to Fed rate cuts? Lenders take note of market conditions and anticipate the central bank’s policy decisions, offering lower rates to borrowers before the cuts are even announced.
“The Federal Reserve rate cut this week has already been priced into mortgage rates, so the immediate impact will be minimal,” says Selma Hepp, chief economist at the real estate analytics platform Cotality, in a statement.
Bill Banfield, chief business officer at Rocket Mortgage, agrees. He says in a statement that “waiting for the official news doesn’t guarantee a better deal. Often, it means the best moment has already passed.”
Still, the September Fed meeting could change the path forward for mortgage rates. Investors will be listening closely to Fed Chair Jerome Powell’s post-meeting press conference, searching for clues about the future direction of policy. Banfield says that “any sign of fewer cuts later this year or early next year or hesitation” could push rates higher.
In the Fed’s updated projections materials, the central bank calls for an additional quarter-point rate cut over the next three years compared with the June projections. That could ultimately signal better conditions for mortgage rates through 2027 — although a lot could happen between now and then.
“As is always the case, these individual forecasts are subject to uncertainty and they’re not a committee plan or decision,” Fed Reserve Chair Jerome Powell said in a Sept. 17 press conference following the rate announcement. “Policy is not on a preset course.”
For now, those who are in the market for a mortgage shouldn’t chase the news but rather should follow more timeless advice: Buy a house when your finances are ready and when the monthly payment makes sense for your financial situation.
For the most part, economic forecasters expect mortgage rates to stay above 6% through 2025 and 2026, so those who are expecting rates in the 5% range may be waiting a while.
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The Fed Cut Rates. Will Mortgage Rates Follow Suit? originally appeared on usnews.com
