What This Week’s Fed Decision Means for Mortgage Rates

get cheaper for homebuyers.

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and more influenced by the bond market, investor expectations and other economic factors.

On Wednesday, the Fed is expected to announce a pause from its rate-cutting path. What does that mean for mortgage rates?

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What is the Federal Reserve’s relationship to mortgages?

, sets and oversees US monetary policy to stabilize the economy. It consists of 12 regional banks and 24 branches, and it is run by a board of governors who are voting members of the Federal Open Market Committee.

to stimulate consumer spending and propel growth.

Though the Fed doesn’t directly set mortgage rates, it influences them by altering the price of credit, which has a domino effect on mortgage rates and the broader housing market over the long term. For example, banks typically pass along the Fed’s rate hikes to consumers in the form of higher interest rates for longer-term loans, including home loans.

Why Labor Data Matters for Mortgage Rates and the Fed

What is the outlook for Fed rate cuts and mortgage rates?

, effectively driving up bond yields and mortgage rates. President Donald Trump’s proposals for tariffs, tax cuts and mass deportations are widely considered to be inflationary, which isn’t good for mortgage rates.

Economists say it’s too early to say how Trump’s economic agenda and a Republican-led Congress might alter the central bank’s approach to interest rate adjustments, noting only that the Fed plans to move cautiously.

, vice president of HSH.com.

. However, the timing of those cuts, as well as the economic data we get between each policy meeting, will determine how quickly (and how far) mortgage rates can fall.

, regional vice president at William Raveis Mortgage. The earliest Cohn thinks the central bank will consider cutting rates again would be at its May policy meeting.

Absent a significant downshift in inflation or a jump in unemployment, it’s unlikely 30-year fixed mortgage rates will drop below 6% any time soon.

What factors affect mortgage rates?

move around for many of the same reasons home prices do: supply, demand, inflation and even the employment rate. Additionally, the individual mortgage rate you qualify for is determined by personal factors, such as your credit score and loan amount.

Economic factors that impact mortgage rates

• : When the Fed adjusts the federal funds rate, it spills over into many aspects of the economy, including mortgage rates. The federal funds rate affects how much it costs banks to borrow money, which in turn affects what banks charge consumers to make a profit.
• , mortgage rates tend to be high. Because inflation chips away at purchasing power, lenders set higher interest rates on loans to make up for that loss and ensure a profit.
• When demand for mortgages is high, lenders tend to raise interest rates. The reason is because lenders have only so much capital to lend out in the form of home loans. Conversely, when demand for mortgages is low, lenders slash interest rates to attract borrowers.
• : Mortgage lenders peg fixed interest rates, like fixed-rate mortgages, to bond rates. Mortgage bonds, also called mortgage-backed securities, are bundles of mortgages sold to investors and are closely tied to the 10-year Treasury. When bond interest rates are high, the bond has less value on the market where investors buy and sell securities, causing mortgage interest rates to go up.
• and a robust economy could indicate greater demand for housing, which can put upward pressure on mortgage rates. When the economy slows and unemployment is high, mortgage rates tend to be lower.

Personal factors that impact mortgage rates

The specific factors that determine your particular mortgage interest rate include:

• credit score
• The home’s location
• The home’s price
• down payment
• loan amount
• loan type and term
• interest rate

Is now a good time to shop for a mortgage?

Even though timing is everything in the mortgage market, you can’t control what the Fed does.

available by making sure your financial profile is healthy while comparing terms and rates from multiple lenders.

Regardless of the economy, the most important thing when shopping for a mortgage is to make sure you can comfortably afford your monthly payments.

“Buying a home is the largest financial decision a person will make,” said Odeta Kushi, deputy chief economist at First American Financial Corporation. If you’ve found a home that fits your lifestyle needs and budget, purchasing a home in today’s housing market could be financially prudent, Kushi noted.

If you’re priced out, it’s better to wait. “Sitting on the sidelines may allow a potential buyer to continue to pay down their debt, build up their credit and save for the down payment and closing costs,” she said.

The bottom line

The Federal Reserve plans to hold interest rates steady in January, but it’s not uncommon for the federal funds rate and mortgage rates to move in different directions for some time. Mortgage rates will continue fluctuating in response to inflation, investor expectations and the broader economic outlook. Experts predict that mortgage rates should go down slowly over the next year.

If you’re shopping for a mortgage, compare the rates and terms offered by banks and lenders. The more lenders you interview, the better your chances of securing a lower mortgage rate.

More homebuying advice

• Weekly Mortgage Predictions
• Forget Mortgage Rates. Americans Say They Can’t Even Save for a Down Payment
• You Might Be Eager to Buy a House, but Homeowners Are Holding Tight to Their Mortgages
• Despite Lower Mortgage Rates, Another Refinancing Boom Isn’t Likely. Here’s Why
• The Election and Gen Z’s Housing Problem

First published on Jan. 28, 2025 at 10:43 a.m. PT.