September 17, 2025

The Fed Just Cut Rates. Tell Me Again Why Mortgage Rates Didn’t Drop Too?

The Federal Reserve lowered the Fed Funds Rate by 0.25% today. You might assume mortgage rates will fall by the same amount (which seems perfectly logical, btw). But here’s the twist- mortgage rates didn’t drop. In fact, they actually went up. What?

This is both confusing and frustrating for my clients when they call me up expecting that lower rate. Let’s clear it up.

Fed Rates vs. Mortgage Rates

The Fed directly influences short-term borrowing costs- things like your credit cards, auto loans, and personal loans. But mortgages are different. Mortgage rates are based on the bond market and investor expectations, and aren’t directly tied to the Fed’s moves.

What that means is that mortgage rates often adjust before the Fed even makes an announcement, as markets try to anticipate what’s coming.

Today’s Example

Case in point: some economists expected the Fed to cut the rate by 0.50%. Mortgage rates have already been adjusting downward for the past week or so in anticipation of that cut, so when the Fed trimmed by only 0.25%, the mortgage market recalibrated. And rates ticked higher instead of lower.

Bottom Line

You can’t assume a Fed cut automatically equals cheaper mortgages. The relationship is more complicated, and sometimes (like today) the opposite actually happens.