Will a Fed Rate Cut Lower Mortgage Rates?

Fed Chair Jay Powell’s recent remarks in Jackson Hole hinted at a possible interest rate cut—but that may not immediately translate into lower mortgage rates. While the current average for a 30-year fixed mortgage stands at approximately 6.6%, rates as low as 3–4%—available during the early post-COVID era—remain out of reach for most buyers.

Here’s why a drop in the federal funds rate might not lower mortgage rates right away:

Different drivers for different rates: The Fed's rate controls short-term interbank lending. Mortgage rates, however, track the 10-year Treasury yield, which reflects longer-term economic expectations.
Market expectations already baked in: Economists, like Zillow's Kara Ng, point out that the anticipation of an upcoming Fed cut is already factored into current mortgage rates. Simply announcing a cut in September doesn’t guarantee rates will fall further.
Persistent economic headwinds: Even if mortgage rates decline modestly, high home prices and ongoing economic uncertainty could keep many potential buyers on the sidelines.

In short: A Fed rate cut may provide indirect pressure on mortgage costs, but without a notable shift in long-term yields or economic optimism, major relief for homebuyers may not materialize immediately.