The Fed Doesn’t Control Mortgage Rates

Every time the Federal Reserve meets, the airwaves light up with speculation: “Will the Fed cut rates, and how will that affect mortgage rates?” Talking heads on business networks confidently tell viewers that mortgage rates will move in lockstep with the Fed’s decision. But here’s the truth: the Fed doesn’t control mortgage rates.

What the Fed Actually Controls

The Federal Reserve sets the overnight lending rate, the rate at which banks lend money to each other on a very short-term basis. This has an indirect influence on consumer credit, such as credit card APRs, car loans, and sometimes home equity lines of credit.

Mortgages, especially long-term fixed-rate mortgages, are priced differently. They are tied to the bond market, particularly mortgage-backed securities (MBS). These securities trade daily, just like U.S. Treasuries, and their prices determine the movement of mortgage rates. When demand for MBS rises, prices go up and yields, or mortgage rates, go down. When demand falls, yields rise and mortgage rates increase.

The September Fed Meeting: A Cut That Changed Nothing

At the Fed meeting on the 17th, policymakers delivered a widely expected 0.25 percent cut to the overnight rate. Yet mortgage rates did not improve. The reason is that markets anticipated this move weeks ago. Investors had already priced it into Treasuries and MBS. By the time the announcement hit the news, the opportunity had already passed. This is a textbook example of why waiting for the Fed is often a losing strategy when it comes to mortgages.

Why Mortgage Rates Move Before the Fed

We saw the same dynamic last year. Mortgage rates improved heading into the Fed’s cuts because markets anticipated policy shifts. But on the actual day of the cut, rates worsened, then spiked higher weeks later after an overstated jobs report rattled markets.

Today’s environment feels like déjà vu. Rates improved before the September meeting, but after the cut, they stalled. At this point, there is not strong momentum for mortgage rates to drift lower in the short term.

Weak labor market reports often signal that the Fed’s monetary policy is too restrictive. Investors anticipate that the Fed will cut rates, so money begins flowing into safe assets like Treasuries and MBS. This demand pushes mortgage rates lower before the Fed makes its official move.

Why This Matters for Borrowers

One of the most common mistakes homeowners make is waiting for the Fed to “cut mortgage rates” before making a refinance or home purchase decision. In reality, by the time the Fed acts, the opportunity has often passed. Waiting on misleading headlines can cost homeowners thousands in missed savings. The key is to make decisions based on how the mortgage market functions, not how TV pundits explain it.

The Smart Approach: Have a Plan

The current environment has opened a window of opportunity for many homeowners. Whether that means lowering your rate, consolidating high-interest debt, or unlocking equity, the right move depends on your unique financial goals. The lesson is clear: do not wait for the Fed’s announcement. Work with a knowledgeable mortgage advisor who can help you time your move strategically.

Our team offers tools like the Strike Rate Strategy and Equity Unleashed Program to help homeowners identify when it makes financial sense to act. The goal is not to follow the crowd, but to create a customized plan so you are ready when the opportunity is right.

The Bottom Line

The Fed does many things, but setting mortgage rates is not one of them. Mortgage rates live and breathe in the bond market, and they often move ahead of the Fed, not after. By understanding this dynamic and preparing with a clear strategy, you can avoid costly mistakes and make smarter decisions about your financing.