Do Fed Rate Cuts Really Lower Mortgage Rates?

When the Federal Reserve hints at lowering interest rates, the headlines always buzz with talk of “cheaper mortgages ahead.” But here’s the truth buyers often don’t hear: mortgage rates don’t move in lockstep with the Fed.

The Fed’s decisions do influence borrowing cost, but mainly for short-term lending like credit cards, auto loans, and adjustable-rate mortgages. Long-term fixed mortgage rates, on the other hand, follow a different leader: the 10-year U.S. Treasury yield.

Why does this matter? Because the Treasury yield reflects what investors think about the future of the economy and inflation. If investors expect inflation to cool or growth to slow, Treasury yields drop and mortgage rates often follow. If inflation heats up again, mortgage rates can rise even if the Fed is cutting rates.

The bottom line for buyers and homeowners:

• A Fed cut may nudge mortgage rates lower, but it’s not guaranteed.

• Fixed-rate mortgages are more tied to investor expectations than Fed announcements.

• Adjustable-rate mortgages (ARMs) tend to be more sensitive to Fed actions.

• Watching bond markets gives better clues than watching press conferences.

For buyers in today’s market, this means opportunity isn’t just about “waiting for Powell.” Instead, it’s about being ready: pre-approved, watching the trends, and knowing when to lock in a rate.

I’ll continue keeping an eye on both the Fed and the broader market signals, so you’ll know what’s really shaping affordability when you’re ready to make a move.