The Fed's interest rate decisions impact mortgages, but the relationship isn't straightforward. Tharon Green/CNET
Later today, the Federal Reserve is expected to extend a pause on interest rate cuts for a fourth consecutive time this year. While mortgage rates could see some volatility, many economists expect them to stay relatively flat until the economic picture changes.
Average rates are likely to stay in the 6.75% to 7.25% range unless the Fed signals multiple cuts and backs up their policy with data, said Nicole Rueth, of the Rueth Team with Movement Mortgage. "Homebuyers waiting on rates to drop drastically might be disappointed," Rueth said.
The relationship between the central bank's monetary decisions and home loan rates isn't direct or immediate. The Fed's three interest rate cuts in 2024 didn't bring down mortgage rates. In fact, the average rate for a 30-year fixed home loan has hovered around 6.8% since late fall.
Usually, what the central bank says about future plans can move the market more than its actual actions. Mortgage rates are driven by the bond market, investor expectations and a host of other economic factors.
"Mortgage rates move on expectations, not announcements," said Rueth.
The focus will be on what Fed Chair Jerome Powell says following the meeting. Should Powell express concern over lingering inflation or a reduced number of rate cuts, bond yields and mortgage rates are expected to rise. If he conveys optimism about inflation and suggests further policy easing, mortgage rates may decline.
"It's most often the case that longer-term interest rates begin to decline before the Fed cuts rates," said Keith Gumbinger, vice president at HSH.com.
Here's what you need to know about how the government's interest rate policies influence the mortgage market.
What is the Fed's relationship to mortgage rates?
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