The Fed Just Cut Rates Again, but Mortgage Rates Keep On Rising

The Federal Reserve has issued another cut to its benchmark interest rate, but unfortunately for homebuyers, it won’t translate to lower mortgage rates in the short term.

As expected, the Fed cut its policy rate by a quarter-point on Thursday, to a new target range of 4.5% to 4.75%. It marked the central bank’s second rate cut in an easing cycle that signaled victory in its war on inflation, and a renewed focus on preventing a recession with major job losses.

Counterintuitively, mortgage rates have been rising steadily since mid-September, powered by moves in the bond market in anticipation of a second Donald Trump presidency. Yields on the long-term bonds that determine mortgage rates took another leg higher this week, after Trump won the election and Republican control of Congress seemed likely.

Earlier on Thursday, mortgage rates rose again for the sixth consecutive week, hitting a four-month high of 6.79%, according to Freddie Mac. The Fed’s latest rate cut, which was universally expected and thus fully priced in to bond markets, is unlikely to bring relief to mortgage rates in the near term.

Over time, consumers and businesses should see lower borrowing costs as the Fed continues its cuts, depending on how quickly and how far the cuts go.

In the short term, credit card rates respond most quickly to changes in the Fed’s benchmark. However, the latest rate change probably means a difference of just a few dollars per month in interest payments for the typical credit card borrower.

Mortgage rates operate relatively independently of Fed policy, and depend more on investors’ long-term views about the economy, inflation, and government deficits. The prospect of a Trump presidency has sent them higher, because investors view his administration as likely to increase deficits through tax cuts and spending on costly programs such as a massive migrant deportation operation.

“Trump’s proposed policies related to tariffs, immigration, and taxes have the possibility of reversing progress on inflation. The Trump campaign’s fiscal policy program is also likely to vastly expand the federal deficit,” says Bright MLS Chief Economist Lisa Sturtevant. “As a result, forecasts of how far mortgage rates will fall at the end of 2024 and into 2025 are shifting.”

Sturtevant forecasts that mortgage rates will remain volatile in the coming weeks, and fall slightly to end the year somewhere in the low to mid-6% range.

Realtor.com® senior economist Ralph McLaughlin is projecting that mortgage rates will stabilize by the end of the year, but notes that they will probably close out the year higher than most had expected prior to this week’s election result.

“Homebuyers hoping for another dip in mortgage rates by the end of the year will likely be disappointed, but the good news is we still expect the long-run trend in rates to be downward as the fight against pandemic-induced inflation comes to an end,” he says.

Although mortgage rates remain frustratingly high, McLaughlin notes that other aspects of the housing market currently favor buyers, including inventory that is at its highest since December 2019, the slowest seasonal market in five years, and nearly 20% of listings now coming with price cuts.

Fed Chair Powell says he won’t resign at Trump’s request

On the campaign trail, Trump shared his view that the Fed was not lowering interest rates quickly enough, and argued that the central bank should follow orders from the president, instead of operating independently as it currently does.

With Trump now the president-elect, the comments raised doubts about the future of Fed Chair Jerome Powell, who has repeatedly emphasized the central bank’s independence and said that political considerations should not play into monetary policy decisions.

Asked at a press conference on Thursday whether he would resign at Trump’s request, Powell defiantly replied with one word: “No.”

At another point, when asked whether the president has the power to fire or demote a Fed chairman, Powell flatly stated: “Not permitted under the law.”

The Fed chair steered clear of commenting on what impact a second Trump administration’s policies might have on inflation and employment rates.

“In the near term, the election will have no effects on our policy decisions,” said Powell. “The economy is quite difficult to forecast looking out past the very near term, and we don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy be, specifically, whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability.”

Powell was initially appointed by Trump in 2018, but the then-president quickly grew frustrated with his choice after Powell resisted his demands to quickly slash interest rates. Trump reportedly explored firing Powell, but was warned by aides that legal restrictions would make that difficult.

Powell was reappointed by President Joe Biden in 2022. His current leadership term at the Fed will end in May 2026, clearing the path for Trump to appoint a more pliant replacement.