Why the Fed’s 0.25% Cut Doesn’t Equal Lower Mortgage Rates

The Federal Reserve recently lowered its benchmark rate by 0.25%. That rate, called the federal funds rate, applies to short-term lending between banks and influences things like credit cards, auto loans, and home equity lines.

Mortgage rates are different. They’re tied more to long-term Treasury bond yields (like the 10-year Treasury) and investor demand for mortgage-backed securities. This means mortgage rates don’t automatically move with a Fed cut.

So what really needs to happen for mortgage rates to come down?

• Inflation has to keep cooling toward the Fed’s 2% target.

• Bond yields need to fall and stay lower.

• Investors must feel confident enough to demand smaller “risk spreads.”

Bottom line: The Fed’s cut is helpful, but it isn’t a magic switch. Mortgage rates will ease meaningfully only when inflation, bond markets, and investor confidence all align.