The Fed Doesn’t Set Mortgage Rates Directly

With the Federal Reserve expected to cut the federal funds rate this week, many buyers are asking: Will mortgage rates go down too?

It’s important to remember that the Fed does not directly set mortgage rates. The federal funds rate is the overnight rate banks charge each other. It influences borrowing costs across the economy but is separate from mortgage rates.

Still, the Fed’s actions—and even its signals—have a major effect on market psychology, which can influence mortgage rate movements.

Markets Have Already Priced In a Cut

At the September meeting, a 0.25% cut is widely expected. Interestingly, markets have already priced this in. Weaker job reports in August and early September pushed investors to expect cuts, which has already nudged mortgage rates lower.

If the Fed surprises with a larger 0.50% cut, mortgage rates could fall further.

Mortgage Rate Outlook

Experts believe more cuts are possible later in 2025. If a cutting cycle begins, mortgage rates may gradually trend downward.

But this depends on economic data:

• If inflation rises unexpectedly → rates could move higher again.

• If growth slows further → rates could fall more sharply.

First American’s chief economist noted that if investor expectations hold, homebuyers may see more favorable mortgage rates in the second half of 2025.

What It Means for Buyers and Sellers

• Buyers: Lower rates improve affordability, reducing monthly payments by hundreds over time.

• Sellers: More buyers re-entering the market increases demand for homes.

Even small changes in mortgage rates—just a few tenths of a percent—can mean tens of thousands of dollars saved over the life of a loan. That’s why it’s critical to turn news into strategy, not just headlines.

Conclusion

The Fed doesn’t directly control mortgage rates, but its decisions set the tone for financial markets. With cuts likely, mortgage rates may gradually soften, creating opportunities for buyers and sellers alike.

📌 If you’re planning to buy or sell, now is the time to build the right strategy.Chicago BDB | Hansang Chul📞 773-717-2227 | 📧 ChicagoBDB@gmail.com