Why Fed Rate Cuts Don’t Automatically Lower Mortgage Rates
When the Federal Reserve announces a rate cut, many people expect mortgage rates to drop right away. It seems like common sense — if the Fed lowers rates, mortgages must get cheaper, right?
Not exactly. This is one of the most common myths in home buying, and clearing it up can help you make confident, well-timed decisions.
What the Fed Actually Controls
The Federal Reserve sets something called the federal funds rate.
This rate mostly affects short-term borrowing—things like credit cards, car loans, and adjustable-rate mortgages (ARMs).
It does not directly set 30-year fixed mortgage rates.
In fact, mortgage rates sometimes move differently. After the Fed cut rates in September 2024, mortgage rates rose from about 6.09% to 6.84% within weeks.
The same thing happened again this week:
The Fed cut its benchmark by 0.25% earlier this week.
Mortgage rates stayed in the same general range and even ticked up slightly afterward.
By September 19, 30-year fixed mortgage rates were averaging 6.13% to 6.56%.
15-year fixed mortgages were 5.41% to 5.79%.
30-year refinance rates averaged about 7.08%.
This happened because mortgage rates had already moved lower in the weeks leading up to the Fed’s decision, as investors expected a cut and priced those lower rates in ahead of time. By the time the announcement came, the market had already reacted.
The Real Driver: The 10-Year Treasury
Mortgage rates mostly follow the yield on the 10-year U.S. Treasury bond.
Here’s why that matters:
Lenders often sell the mortgage debt to investors, who buy it for the steady monthly payments homeowners make.
Those investors compare mortgages to safe long-term U.S. government bonds.
If the 10-year Treasury pays more, mortgage investors want to earn more too — so mortgage rates rise.
If the 10-year Treasury pays less, mortgage rates usually come down.
Mortgage rates are almost always about 1.5–2.5 percentage points higher than the 10-year Treasury. That gap is like a safety cushion for lenders, and it can shift based on how confident they feel about the economy.
Why Rates Move Before the Fed Acts
Markets are forward-looking.
Investors don’t wait for the Fed to act — they move early based on what they expect will happen.
This year showed that clearly. The 10-year Treasury yield started dropping back in July, weeks before the Fed meeting, as investors prepared for a likely cut. Mortgage rates followed, reaching their lowest point in nearly a year by mid-September.
Because investors were expecting a Fed rate cut, they had already priced lower mortgage rates into the market before the announcement.
Once the Fed officially announced the cut, most of the good news had already been priced in, so rates stayed steady or nudged slightly higher.
What This Means for Homebuyers
Here’s the key takeaway:
Mortgage rates respond to market expectations, not just Fed announcements.
That means the best opportunities often appear before the Fed takes action — which is good news for buyers who are paying attention.
Fed decisions help shape the economy, but mortgage rates follow their own path. Knowing this can help you move confidently when the right home and the right rate come along.