A lot of people saw the Federal Reserve cut rates in September 2025 and assumed mortgage rates would immediately fall. That did not happen. In fact, average 30-year fixed mortgage rates edged up slightly, moving from about 6.26 percent to roughly 6.30 percent. This feels backwards if you are a buyer or homeowner waiting for relief, but it makes sense once you understand how interest rates actually work.
The first thing to clear up is that the Fed does not directly control mortgage rates. When the Fed cuts rates, it is adjusting the federal funds rate. That is a short-term, overnight lending rate that banks use to lend money to each other. Changes to this rate affect things like credit cards, personal loans, auto loans, and some adjustable-rate products like HELOCs. Mortgages are different. A 30-year fixed mortgage is long-term debt, and long-term debt is priced off the bond market, not the Fed’s headline decision.
Mortgage rates closely track the 10-year Treasury yield. Investors who buy mortgage-backed securities compare them to Treasurys of similar duration. When the yield on the 10-year Treasury goes up, mortgage rates usually rise. When it falls, mortgage rates often follow. That means the bond market, not the Fed press conference, is doing most of the work.
Another reason rates are not dropping quickly is that markets move ahead of Fed decisions. By the time the Fed actually cuts rates, investors have often already priced that move into bonds weeks or months earlier. In this case, mortgage rates had already fallen meaningfully before the September cut. Rates dropped from around 6.89 percent in May to about 6.26 percent by mid-September. That decline happened because investors expected slower economic growth and future rate cuts. When the cut finally arrived, there was no new surprise for the market, so rates did not keep falling. Instead, they bounced slightly.
Sandy Jamison, of the Jamison Team in San Jose says, “Inflation expectations are also a major factor. Even if inflation is cooling, investors care about where it is headed, not where it has been. If inflation data comes in hotter than expected, or if energy costs, wages, or tariffs suggest future inflation pressure, bond investors demand higher yields. Higher yields mean higher mortgage rates. The Fed can cut short-term rates, but if investors believe inflation will stay elevated, long-term rates will remain stubborn.”
Jobs and economic resilience matter too. The Fed has a dual mandate: price stability and maximum employment. If the labor market remains relatively strong and unemployment stays low, there is less urgency to aggressively cut rates. A resilient economy can keep demand high, which in turn keeps inflation risks alive. Bond markets react to that by pushing long-term yields higher or keeping them elevated, even during a cutting cycle.
Jamison also states, “There is also a supply and demand issue in the bond market itself. The U.S. Treasury is issuing a large amount of debt to fund government spending. More supply of Treasurys means investors often require higher yields to absorb that supply. This structural pressure can keep long-term rates higher than many people expect, regardless of Fed cuts.”
For borrowers, the key takeaway is that not every Fed cut leads to lower mortgage rates. Watching Fed headlines alone is not enough. Inflation trends, jobs data, global events, and especially the 10-year Treasury yield matter more. If you are buying a home or refinancing, timing the absolute bottom is nearly impossible. Rates often move before the news and react unpredictably after.
Instead of waiting for dramatic drops that may not come quickly, many buyers are focusing on affordability strategies. These include negotiating price reductions, using seller credits to buy down rates, or planning to refinance later if long-term rates eventually move lower. The Fed may continue cutting, but mortgage rates will only follow if the bond market believes inflation is truly under control and long-term economic risks are easing.
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