How Federal Reserve Rate Changes Affect Mortgage Rates

Federal Reserve Chairman Jerome Powell announced a 0.25% cut in the benchmark federal funds rate on Dec. 10, 2025 — the third cut this year. After a cut, home buyers usually wonder how much and when Fed rate changes might affect mortgage rates. The impact and timing can be harder to nail down than you might think.

Factors in Connecting Fed Rate Cuts and Mortgage Rates

Consider these two factors:

1. Unpredictability: Lenders typically anticipate mortgage rates in the runup to a Fed action, so they adjust interest rates before the decision. But that doesn’t always happen. Even though the December cut was widely expected, mortgage rates rose, according to a Bankrate national survey of lenders. The 30-year mortgage rate increased by nine basis points the day before the Fed’s announcement, which was considered an unusual development, reported Morningstar.
2. Mismatched benchmarks: The federal funds rate is short term and reflects the interest rate that banks borrow and lend to one another, not the rate consumers pay. Thirty-year mortgage rates are more closely tied to 10-year Treasury yields, which are shaped by the general economy, including inflation and investor demand. Those differences make it hard to connect Fed rate cuts with mortgage rates.

Look for Long-Term Comparisons

Lawrence Yun, National Association of REALTORS® chief economist, offered this advice at an NAR economic summit the day before the Fed announcement. “Don’t expect mortgage rates to decline along with [Federal Reserve cuts]. There’s never a one-to-one relationship, but the mortgage rates over a long-term horizon can move in a similar direction.”

So, what will affect mortgage rates? Factors like the federal budget deficit and an upcoming Supreme Court decision about the constitutionality of President Trump’s tariffs will likely make a difference, he said.

Fed Chair’s Take on Housing

During a post-meeting press conference, Powell said the housing market faces significant challenges and that a 25-basis-point cut won’t make much difference. The nation’s housing supply remains low, and the ultra-low mortgage rates some homeowners grabbed during the pandemic are discouraging many from moving, since rates are now much higher, he added.

“Housing is going to be a problem,” Powell said, later adding that the central bank doesn’t “have the tools to address a structural housing shortage.”

Mortgage Rates Can Vary, So Shop Around

If you’re considering applying for a mortgage loan now, keep in mind that you’ll likely be quoted different rates by online lenders, local banks, and credit unions, and that difference can add up over time. Be sure to shop around.

Lynn Ettinger has written about real estate and business for more than two decades. Her award-winning work has been published by media outlets and organizations including “Bloomberg Tax,” “Crain’s Chicago Business,” and Deloitte.

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