$\"What$ \n

The Federal Reserve<\/em> (the Fed) meets this week, and expectations are high that they\u2019ll cut the Federal Funds Rate. But does that mean mortgage rates will drop? Let\u2019s clear up the confusion.<\/p>\n

The Fed Doesn\u2019t Directly Set Mortgage Rates<\/strong><\/h4>\n
Right now, all eyes are on the Fed. Most economists expect they\u2019ll cut the Federal Funds Rate at their mid-September meeting to try to head off a potential recession.<\/p>\n
According to the CME FedWatch Tool<\/em>, markets are already betting on it. There\u2019s virtually a 100%<\/a> chance of a September cut. And based on what we know now, there\u2019s about a 92% chance it\u2019ll be a small cut (25 basis points) and an 8% chance it will be a bigger cut (50 basis points):<\/p>\n
$\"a$ <\/a>So, what exactly is the Federal Funds Rate? It\u2019s the short-term interest rate banks charge each other. It impacts borrowing costs across the economy, but it\u2019s not the same thing as mortgage rates. <\/strong>Still, the Fed\u2019s actions can shape the direction mortgage rates take next.<\/p>\n
Why Markets Already Saw This Cut Coming<\/strong><\/h4>\n
Here\u2019s the part that may surprise you. Mortgage rates tend to respond to what the financial markets think <\/em>the Fed will do, before the Fed officially acts. Basically, when markets anticipate a Fed cut, that outlook gets priced into mortgage rates ahead of time.<\/p>\n
That\u2019s exactly what happened after weaker-than-expected jobs reports on August 1 and September 5. Each time, mortgage rates ticked down as financial markets grew more confident a cut was coming soon. And even though inflation rose slightly in the latest CPI report<\/a>, the Fed is still expected to make a cut.<\/p>\n
So, if the Fed goes with a 25-basis point cut<\/strong>, as expected, that\u2019s likely already baked in to current mortgage rates, and we may not see a dramatic drop.<\/p>\n
But if they go bigger and drop their Federal Funds Rate by 50 basis points <\/strong>instead, mortgage rates could come down more than they already have.<\/p>\n
So, Where Do Mortgage Rates Go from Here?<\/strong><\/h4>\nWhile the upcoming cut may not move the needle much, many experts expect<\/a> the Fed could cut the Federal Funds Rate more than once before the end of the year. Of course, that\u2019s if the economy continues to cool (see graph below<\/em>):<\/p>\n
$\"a$ <\/a>As Sam Williamson, Senior Economist at First American<\/em>, explains<\/a>:<\/em><\/p>\n
\u201cFor mortgage rates, investor confidence in a forthcoming rate-cutting cycle could help push borrowing costs lower in the back half of 2025, offering some relief to housing affordability and potentially helping to boost buyer demand and overall market activity.\u201d<\/em><\/p><\/blockquote>\n
If multiple rate cuts happen, or even if markets just believe <\/em>they will, mortgage rates could <\/em>ease further in the months ahead. But here\u2019s the catch \u2013 all of this depends on how the economy evolves. Surprise inflation data or unexpected shifts could quickly change the outlook.<\/p>\n
Bottom Line<\/h3>\n
Mortgage rates likely won\u2019t drop sharply overnight, and they won\u2019t mirror the Fed\u2019s moves one-for-one. But if the Fed begins a rate-cutting cycle, and markets continue to expect it, mortgage rates could trend lower later this year and into 2026.<\/p>\n
If you\u2019ve been waiting and watching the housing market, now\u2019s the time to talk strategy. Even small changes in rates can make a meaningful difference in affordability, and understanding what\u2019s ahead helps you make the best decision for your situation.<\/p>\n<\/div>\n\n<\/body>","protected":false},"excerpt":{"rendered":"
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