The Fed's interest rate adjustment is important to the real estate market, but your way of thinking is not important.
Despite President Trump's demands to be cut immediately, the Fed will almost certainly keep interest rates stable at the end of today's meeting.
If you are in the market for homes, you may be wondering what this means for mortgage rates.
As the Fed adjusts its benchmark interest rate, savings account rates and short-term loan vehicles follow quickly. However, long-term interest rates such as mortgages draw clues from broader economic outlook and fiscal indicators rather than directly from policymakers’ actions.
Given today's turbulent political and economic environment, mortgage rates may rise or fall significantly – or they may remain relatively stable in the 6% to 7%.
“The Fed did not set mortgage rates, but it sets the tone,” said Nicole Rueth of Rueth Team.
Mortgage rates are closely related to the bond market, and investors’ forecasts for the next step. Currently, Trump's unstable tariff movement has caused widespread uncertainty among bond investors, leading to volatility in the mortgage market.
What are the main considerations for the Fed?
The Fed has remained stable this year after lowering interest rates three times in 2024. Central banks need to measure how Trump’s economic agenda, especially around how trade, immigration and government spending will affect inflation and employment.
There are also concerns about a potential U.S. recession, characterized by shrinking GDP, lower claims of unemployed people and consumer confidence.
“The Fed is one of the toughest places in recent economic history,” said Ali Wolf, chief economist at Zonda and Newhomesource.
Lowering interest rates could cause inflation to surge, which is bad for mortgage rates. However, keeping the tax rate high increases the risk of unemployment recession, which will cause widespread financial hardship. “That's why there's a lot of 'waiting and seeing' happening in the Fed,” Wolf said.
In the mortgage market, what is the central bank explain More important than what Do. Investors will review the remarks of Fed Chairman Jerome Powell to address how policymakers weigh economic risks.
If the Powell signal is concerned about inflation, or mentions that interest rates are less likely to be lowered in 2025, bond yields and mortgage rates may increase. But if the growth risks arising from tariffs are at risk, he notes that ongoing policies in the coming months, mortgage rates could fall.
“Tariffs increase the risk of inflation while slowing demand; it's a policy nightmare for the Federal Reserve,” Ruiz said.
Watch the following: 6 Ways to Lower Your Mortgage Rate by 1% or More
How does the Fed affect mortgage rates?
The Fed sets and oversees our monetary policy under dual mandates to maintain price stability and maximum employment. It does this in large part by adjusting the federal funds rate, the interest rates on which banks borrow and lend.
When the economy is in a downturn or downturn, the Fed lowers interest rates to stimulate consumer spending and drive growth, just like during the 19th pandemic.
In an inflationary environment, the Fed raised interest rates to slow economic growth. For example, the Fed raised its benchmark interest rate by more than 5 percentage points between early 2022 and mid-2023 to combat inflation by curbing consumer lending and spending.
Changing credit prices can lead to slow impacts on mortgage rates and the wider housing market. Banks usually follow the Fed's or cut it to consumers through long-term loans, including home loans.
However, since mortgage rates react to several economic factors, it is not uncommon for federal funds and mortgage rates to move in different directions over a period of time.
Read more: Why labor data is important for mortgage rates and the Fed
How will the Fed's future reduction affect mortgage rates?
The Fed's forecast pointed to two cuts this year, with the first likely from July, but remains uncertain. In order for the Fed to resume lowering interest rates, policy makers need to see inflation continue to decline or the labor market deteriorate rapidly.
If unemployment and the economy slow down further, the Fed may be forced to implement more interest rate cuts. In this case, mortgage rates should be gradually alleviated.
Most housing market forecasts have considered at least two 0.25% Fed cuts, requiring 30-year mortgage rates to remain above 6% over the 2025 period.
Even if interest rates do drop during the recession, the housing market won’t suddenly become affordable if families are struggling to deal with high prices and job insecurity. Today’s unbearable housing market is also still plagued by limited inventory and steep housing prices.
What other factors affect mortgage interest rates?
Mortgage rates rise and fall, and for many of the same reasons, the same goes for house prices: supply and demand, demand, inflation and even employment rates. But your own personal mortgage rate also depends on your personal finances, such as your credit score and down payment, as well as the specific type and terms of the loan you choose.
Policy changes: When the Fed adjusts the federal funding rate, it affects many aspects of the economy, including mortgage rates. Federal funding rates affect the cost of borrowing money from banks, which in turn affects the fees charged by banks to make profits.
inflation: Usually, mortgage rates tend to be high when inflation is high. As inflation disappears in terms of purchasing power, lenders set higher interest rates as loans to compensate for this loss and secure profits.
supply and demand: When demand for mortgages is high, lenders tend to raise interest rates. This is because they only have a lot of funds to borrow in the form of a home loan. Conversely, when demand for mortgages is low, lenders tend to cut interest rates to attract borrowers.
Bond Market Activities: Mortgage lenders fix fixed interest rates (such as fixed interest rate mortgage) on bond rates. Mortgage bonds (also known as mortgage-backed securities) are mortgage bundles sold to investors and are closely linked to the 10-year Treasury Department. When the bond interest rate is high, the bond has less value in the market where investors buy and sell securities, resulting in a rise in mortgage rates.
Other key indicators: Employment methods and other aspects of the economy affect investor confidence, and consumer spending and borrowing can also affect mortgage rates. For example, a strong employment report and a strong economy may indicate greater demand for housing, which may put up pressure on mortgage rates. Mortgage rates tend to drop when the economy slows down and unemployment is high.
Read more: Fact check: Trump has no right to force lower interest rates
Is this a good time to get a mortgage?
Even if timing is everything in the mortgage market, you can’t control the Fed’s work. “In today's market, it's almost impossible to predict interest rates,” Wolf said.
Regardless of the financial situation, the most important thing when buying a mortgage is to make sure you can afford your monthly payments comfortably.
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