The Fed Is Poised to Cut Rates, But Mortgage Markets May Have Already Moved
Mortgage rates have been quietly drifting lower over the past few weeks, hitting some of the lowest levels we’ve seen this year. With the Federal Reserve expected to cut rates tomorrow, many are wondering what this means for the housing market. The answer is not as straightforward as it might seem.
Let’s take a closer look at why the Fed is making this move, what it could mean for rates, and what buyers and sellers should be paying attention to right now.
What’s Happening with the Fed?
The Federal Reserve is widely expected to cut the federal funds rate by 0.25%. That decision is already priced into current mortgage rates. In other words, the market has seen this coming and has already responded.
Mortgage rates have been trending lower for several weeks, as shown in the graph below.
The graph above shows national 30-year fixed rates as surveyed by Optimal Blue and does not include discount points.
The real focus is not on the rate cut itself. It’s on what the Fed says in the official statement and during Chair Jerome Powell’s press conference. We will also get an updated “Dot Plot,” which shows where Fed officials believe rates are headed over the next few years.
These details will give the market a better idea of whether more rate cuts are likely in the coming months or if this is a one-time move.
Why Is the Fed Cutting Rates Now?
The Fed has two primary goals: keeping inflation in check and supporting a healthy job market.
Inflation has been running a little high, staying in the mid-to-high 2 percent range instead of the target of 2.0 percent. It has not been extreme, and so far, tariff-related price increases have not materialized in a meaningful way.
What has shifted the Fed’s thinking is the labor market. Recent revisions from the Bureau of Labor Statistics show that job growth in previous months was far weaker than originally reported. May’s job gain estimate was revised down from 139,000 to just 19,000. June’s number dropped from 147,000 to 14,000. An annual benchmarking process also cut previously reported job gains by over 900,000.
These adjustments revealed a labor market that is not as strong as it appeared just a few months ago. In response, the Fed has signaled a need to adjust its approach.
What Will Happen to Mortgage Rates?
This is where things often get misunderstood. The Fed does not set mortgage rates directly. It controls short-term interest rates, which affect things like credit cards and short-term loans. Mortgage rates, however, are more closely tied to the 10-year Treasury yield and are driven by investor expectations about the broader economy.
In fact, the last two times the Fed cut rates, mortgage rates went up shortly afterward. This is because markets are forward-looking and often move before the Fed even acts.
So while a rate cut may sound like good news, it may not push mortgage rates any lower. What matters more is the tone the Fed takes and the direction it signals for the rest of the year.
What About Tariffs and Government Shutdown Concerns?
There is some noise in the headlines around trade policy and federal funding, but the market is not overly concerned with those issues at the moment. Legal challenges to tariffs and the possibility of a government shutdown are certainly worth watching, but right now the focus remains on Fed policy and economic data.
What Buyers and Sellers Should Know
Mortgage rates are near the lowest they’ve been all year. That creates an opportunity, but it is important to remember how quickly things can change. If the Fed signals caution, or if future economic data comes in stronger than expected, rates could tick back up.
Getting pre-qualified in today’s rate environment can provide a stronger position when making an offer and offers more clarity on what’s possible. It is also a smart way to be ready in case rates move again.
Have questions or want to explore what this means for a specific situation? Let’s connect. Understanding how these decisions play out in real-time can help both buyers and sellers make confident moves in the months ahead.
