Why Mortgage Rates Don’t Always Follow the Fed (and What That Means for You)

Whenever the Federal Reserve announces a rate cut or hike, headlines light up — and homebuyers wonder what will happen to mortgage rates. You might expect them to drop immediately after a Fed cut, but that’s rarely what happens.

Recently, we’ve seen exactly that: the Fed lowered its benchmark rate, yet mortgage rates barely moved. Here’s why — and how understanding this dynamic can help you time your next move.

 

The Fed Doesn’t Directly Control Mortgage Rates

The Federal Funds Rate is the overnight rate that banks charge each other to lend money for less than 24 hours. It’s the shortest-term borrowing cost in the economy.

Mortgage rates, however, are tied to mortgage-backed securities (MBS), which trade in the bond market. The bond market reacts to a variety of economic data — inflation, employment, GDP — and, importantly, to what investors expect the Fed will do in the future.

 

Fed Funds Futures: The Market’s Early Warning System

Here’s the part most people never hear about: there are entire financial instruments designed just to predict where the Fed Funds Rate will be months from now. These are called Fed Funds Futures, and they let traders essentially “bet” on future Fed moves.

Because of this, the bond market usually adjusts before the Fed officially acts. If investors are confident the Fed will cut rates, mortgage rates often drift lower well in advance. By the time the Fed makes its announcement, the move is already priced in — which is why you might see mortgage rates stay flat (or even rise) on the actual announcement day.

 

Recent Example: A Big Drop This Quarter

This year we’ve seen mortgage rates drop nearly half a percent over the course of a single quarter as markets priced in several anticipated Fed cuts. That kind of change can significantly boost buyer affordability — often saving hundreds per month on a typical mortgage payment.

 

Why This Matters for Buyers and Sellers

For sellers, buyer affordability directly impacts how quickly homes sell and at what price. For buyers, waiting for the “next Fed cut” might actually cause you to miss the most favorable window to lock in a rate.

That’s why I stay in close contact with multiple local lenders and mortgage brokers — so my clients get real-time insight and better options when selling their current home and buying their next one.

 

Your Next Step

Don’t let headlines dictate your timing. Stay ahead of the market with a clear strategy.