WASHINGTON, D.C. — As of August 26, 2025, U.S. mortgage rates have shown tentative signs of stabilization after a volatile year marked by persistent inflation and economic uncertainty under the Trump administration. With the Federal Reserve’s next meeting on the horizon, many homebuyers and homeowners are wondering if rates could dip further in the coming weeks, potentially improving affordability in a market still grappling with high borrowing costs. While the Fed’s actions play a pivotal role, mortgage rates are influenced by a broader array of factors, including the 10-year Treasury yield, economic data releases, and global events. Based on current trends and expert forecasts, there’s a modest chance for slight improvement, but significant drops are unlikely before the September 17-18 FOMC meeting.
The Federal Open Market Committee (FOMC), the Fed’s rate-setting body, last met in July 2025, opting to hold the federal funds rate steady at 5.25%-5.50% amid mixed signals on inflation and employment. The next meeting, scheduled for September 17-18, is widely anticipated to feature the first rate cut of the Trump era, with markets pricing in a 25-basis-point (0.25%) reduction based on the CME FedWatch Tool. This expectation stems from cooling inflation—July’s CPI rose just 2.9% year-over-year, below the Fed’s 2% target—and softening labor market data, including unemployment at 4.2%. Fed Chair Jerome Powell has signaled a “data-dependent” approach, but recent comments suggest cuts could begin soon if trends hold.
Current Mortgage Rate Landscape
As of August 26, 2025, the average 30-year fixed mortgage rate stands at 6.85%, according to Freddie Mac’s weekly survey—a slight dip from 6.95% the previous week but still elevated compared to the sub-3% lows of 2021. Fifteen-year fixed rates are averaging 6.15%, while 5/1 adjustable-rate mortgages (ARMs) hover around 6.25%. These levels reflect a partial unwind from the 7.8% peak in late 2023, driven by the Fed’s aggressive hiking cycle to combat post-pandemic inflation.
However, mortgage rates don’t move in lockstep with the federal funds rate. They are more closely tied to long-term bond yields, particularly the 10-year Treasury, which currently yields about 4.20%. Yields have edged lower in August due to expectations of Fed easing and softer economic indicators, such as the ISM Manufacturing Index falling to 46.6 in July, signaling contraction. This has provided some downward pressure on mortgage rates, but volatility persists amid concerns over potential trade tariffs and fiscal policy under President Trump, which could reignite inflationary pressures.
| Mortgage Type | Current Rate (Aug 26, 2025) | Week-Ago Rate | Year-Ago Rate |
|---|---|---|---|
| 30-Year Fixed | 6.85% | 6.95% | 6.52% |
| 15-Year Fixed | 6.15% | 6.22% | 5.89% |
| 5/1 ARM | 6.25% | 6.35% | 5.98% |
Source: Freddie Mac Primary Mortgage Market Survey. Rates include fees and points, assuming a 20% down payment and strong credit.
Factors That Could Drive Rates Lower Before the September Meeting
Several dynamics could push mortgage rates “better” (i.e., lower) in the roughly three weeks leading up to the Fed’s decision:
- Upcoming Economic Data: Key releases between now and mid-September include the August jobs report (September 5), ISM Services PMI (September 4), and July PCE inflation data (August 29)—the Fed’s preferred gauge. If these show continued cooling (e.g., job growth below 150,000 or PCE under 2.5%), bond yields could fall further, pulling mortgage rates down by 5-10 basis points. Conversely, hotter-than-expected figures could stall progress.
- Treasury Yield Trends: The 10-year yield has declined 15 basis points this month, correlating with a 10-basis-point drop in 30-year mortgage rates. If yields continue to soften on recession fears or global demand for U.S. debt, rates could ease to 6.75% or lower by early September. Analysts at Mortgage News Daily note that yields are “highly sensitive” to Fed signaling, and Powell’s Jackson Hole speech on August 22 hinted at cuts without committing, which tempered immediate declines.
- Market Pricing and Fed Forward Guidance: Futures markets now imply a 95% chance of a September cut, up from 85% a month ago. If the Fed’s post-meeting statement or Powell’s press conference adopts a more dovish tone—perhaps projecting two cuts by year-end—yields could drop preemptively. Historical precedent supports this: Mortgage rates fell 20 basis points in the two weeks before the March 2020 cut amid COVID fears.
- Broader Economic and Geopolitical Influences: Easing oil prices (down 5% in August) and a stronger U.S. dollar could reduce imported inflation, supporting lower rates. However, risks like escalating U.S.-China trade tensions or Hurricane season disruptions could counteract this.
Potential Roadblocks to Improvement
Not all signs point to better rates. Inflation remains sticky in services, and the Trump administration’s proposed tariffs on imports could add 0.5%-1% to CPI, per economists at Goldman Sachs, potentially keeping the Fed cautious. Additionally, if the labor market proves resilient—August nonfarm payrolls are forecasted at 160,000—yields might rebound, pushing mortgage rates back toward 7%. Lender pricing also includes a “spread” over Treasuries (currently 250 basis points), which could widen if credit risks rise.
Fannie Mae’s latest forecast projects 30-year rates averaging 6.7% by Q4 2025, implying a possible 15-basis-point decline from current levels, but much of that may materialize post-September. MBA economists echo this, predicting rates won’t dip below 6.5% until Q1 2026 without aggressive Fed action.
Implications for Borrowers and the Housing Market
For American homebuyers, even a small rate improvement could unlock affordability. At 6.85%, the monthly payment on a $400,000 loan (20% down) is about $2,100, versus $1,900 at 6.00%—a $200 savings that could sway decisions. Refinancers, locked in at higher rates from 2023, might also benefit, though many are waiting for sub-6% territory.
The housing market remains sluggish, with existing home sales at 3.8 million annualized in July—near historic lows—due to high rates and low inventory. A pre-meeting dip could spur a mini-boom in applications, as seen in August when the MBA reported a 4% weekly increase in mortgage demand.
In summary, mortgage rates could get modestly better—potentially dropping 10-20 basis points—by the next Fed meeting if economic data cooperates and yield trends hold. However, dramatic improvements are improbable without a surprise from the Fed or a sharp economic downturn. Prospective borrowers should monitor weekly Freddie Mac updates and consult lenders for rate locks, as timing the market is notoriously difficult. As one expert from the National Association of Realtors noted, “In this environment, any relief is welcome, but patience may be key for the biggest gains.”