Fed Rate Cuts Coming—But Your Mortgage Rate Won’t Budge. Here’s Why.

The Federal Reserve’s looming rate cuts have Wall Street buzzing—but homeowners shouldn’t hold their breath for cheaper mortgages.

The disconnect no one’s talking about: While the Fed’s moves directly influence short-term borrowing costs, mortgage rates dance to their own tune—often tied to 10-year Treasury yields and lender risk appetites. Translation: banks will pocket the savings while you keep overpaying.

Why this stings extra in 2025: With housing inventory still tight and inflation lingering like bad advice from your broker, lenders have zero incentive to pass along relief. Classic finance—privatize the gains, socialize the pain.

One cynical take? The system’s rigged so you’ll refinance (and pay fees) when rates eventually dip—just in time for the next bubble.

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A number of economic data releases between now and the Sept. 16-17 meeting could lead to rate swings in the coming weeks. The relationship between the Fed’s rate cuts and mortgage rates isn’t direct, and mortgage rates are sensitive to a number of other factors, most notably bond yields.

Read more: How does the Fed rate decision affect mortgage rates?

For mortgage industry professionals, moments like this can be a frustrating time to be in business. Mortgage rates stayed stuck in the high 6% area for most of this year, stymying affordability-stretched buyers and keeping refinancing action limited. Now that rates are finally moving lower, they’re fielding more calls from prospective clients.

But many customers say they want to wait until September to MOVE forward, in hopes that rates will drop further.

“Oh my gosh, it’s my least favorite thing to hear,” said Taylor Sherman, a mortgage loan originator at Barrett Financial Group in Tucson, Ariz. “I’m like, ‘Well, you know, that’s already priced in.' Yes, Fed policy determines rates, but it’s really about how the market views Fed policy.”

When the Fed cuts interest rates, rates on debt tied to the prime rate, like home equity lines of credit and credit cards, typically drop soon after. But the rates on standard 30-year fixed mortgages aren’t linked to prime, and often don’t react much. Sometimes, like last year, mortgage rates even move higher.

Mortgage rates are influenced primarily by 10-year Treasury yields, which move in response to a range of factors like market expectations about inflation, future government borrowing, and what the Fed is doing. Mortgage spreads — the difference between the 10-year yield and prevailing mortgage rates — also play an important role in rates and vary based on other factors like market volatility and demand for mortgage bonds.

Read more: What is the 10-year Treasury note, and how does it affect your finances?

According to CME FedWatch, traders currently see an 85% chance of a rate cut in September. Those odds are essentially baked into today’s mortgage rates, but rates could still oscillate between now and then for a number of reasons. Before the Fed acts, new economic data on August hiring and producer and consumer inflation will be released. Earlier this month, weak jobs data in particular helped push mortgage rates to their current year-to-date lows.

Right now, a buyer with $3,000 a month to spend on their home has around $20,000 more in purchasing power than they did in May, when mortgage rates hit their recent peak of just over 7%, according to Redfin.

The brokerage’s head of economics research, Chen Zhao, said in a statement that homebuyers waiting on the Fed before starting their search might be too late, especially as interest rate volatility is expected to kick up in the coming weeks as new data comes out.

Read more: Will mortgage rates ever be 3% again?

Bogdan Toderut, a loan officer with Summit Funding in Cumming, Ga., is monitoring inflation and hiring data as he tries to figure out where mortgage rates go from here.

“A lot of times, the market prices in expectations,” Toderut said. “When you see the big changes, you see them when expectations weren’t met.”

Although he thinks some of his investor clients might be better off trying to time the market, he advises most buyers to consider overall affordability and their monthly payments over the minutiae of small rate moves.

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After all, mortgage rates can change quickly and unpredictably. When rates hit 6.2% last September, Arkansas-based loan officer Amber Moser prepared refinancing quotes for several dozen clients. None of those deals went forward because the homeowners were holding out for lower rates that never came. Ultimately, they missed out on savings that could have amounted to $300 or $400 a month.

Moser, who works for Gershman Mortgage, said she makes a point to educate prospective clients on how mortgage rates are market-driven and move before milestones like Fed cuts. But she, too, warns them that rates are ultimately unpredictable.

“There’s no crystal ball, and we have no idea what’s going to happen,” Moser said. “The best bet is, don’t try to time the market.”

Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.