Will Mortgage Rates Bounce Higher on the Expected Fed Rate Cut?
As the Federal Reserve gears up for its anticipated interest rate cut this week—marking the first reduction of 2025—homebuyers and homeowners are eyeing mortgage rates with cautious optimism. With the federal funds rate held steady at 4.25%-4.50% throughout the year amid persistent inflation, markets now price in a near-certain 25-basis-point trim at the September 17-18 Federal Open Market Committee (FOMC) meeting, potentially lowering it to 4.00%-4.25%. Yet, while this easing could signal relief for borrowers, experts warn that mortgage rates might not follow suit immediately—and could even rebound higher in the short term. This dynamic highlights the complex interplay between Fed policy and the housing market, where anticipation has already driven rates down, but post-cut realities like Treasury yields and inflation expectations could reverse the trend.
Current Landscape: Mortgage Rates at an 11-Month Low
As of September 16, 2025, the average 30-year fixed mortgage rate stands at approximately 6.37%, according to Bankrate’s survey of major lenders, down from peaks above 7% earlier this year. This marks a significant slide, with Freddie Mac reporting a 15-basis-point drop to 6.49% for the week ending September 5—the lowest since October 2024. Refinance rates hover around 6.71%, while 15-year fixed rates are at about 5.66%.
This decline predates the Fed’s decision, fueled by market anticipation of cuts amid softening labor data—a weaker August jobs report added momentum, pushing odds of a half-point cut to 12% before settling on a quarter-point as the baseline. “The anticipation of a Fed rate cut… has already done more to lower Treasury and mortgage rates than the actual cut is likely to,” notes Greg McBride, chief financial analyst at Bankrate. However, with rates now “baked in,” the post-announcement reaction could introduce volatility.
The Fed’s Expected Move: A Modest 25 Basis Points
The Fed’s pause on cuts in 2025 followed three reductions in late 2024, as inflation lingered above the 2% target—hitting 2.9% in August. Chair Jerome Powell’s Jackson Hole speech in late August signaled easing was on the horizon, citing a cooling job market and balanced risks. CME FedWatch Tool data shows over 95% probability of a September cut, with markets expecting 75 basis points total through year-end.
Yet, this modest step—smaller than last year’s 50-basis-point surprise—may not jolt long-term rates. “The first cut… is likely to have a muted impact on mortgage rates, at least in the beginning,” explains a CBS News analysis, pointing to the federal funds rate’s influence on short-term borrowing rather than the 30-year mortgages tied to 10-year Treasury yields. Mortgage rates have already fallen in anticipation, but if the cut underwhelms aggressive market bets, yields could rise, pulling mortgages higher.
Why Mortgage Rates Might Bounce: Key Factors at Play
Mortgage rates aren’t directly set by the Fed; they’re benchmarked against the 10-year Treasury yield, which reflects broader economic outlooks on inflation, growth, and deficits. Currently, yields have dipped to around 3.8%, aiding the rate decline, but post-cut scenarios vary.
Scenario 1: Minimal Impact or Slight Dip. If the cut aligns with expectations and inflation data remains tame, rates could stabilize or ease modestly to 6.2%-6.3% by October, per Forbes Advisor forecasts averaging 6.7% for the year. “An easing in the Fed’s monetary policy will contribute to a favorable setting for mortgage rates to continue trending downward,” says Jeff DerGurahian, chief investment officer at loanDepot.
Scenario 2: A Rebound Higher. History suggests caution: Last September’s 50-basis-point cut initially spiked rates due to growth optimism and inflation fears. Analysts like Danielle Hale of Realtor.com warn, “The market has really high expectations for the Fed to move quickly… [if not,] interest rates could go up.” Rising producer prices and potential tariffs under the Trump administration could fuel inflation to 4.9%, per University of Michigan surveys, pushing yields up and mortgages toward 6.8% or higher. “Mortgage rates overall could shoot up from here, not down as expected,” cautions Clark Peters of a Michigan credit union.
Broader Influences. Persistent deficits, global debt supply, and policy uncertainty amplify risks. NAR’s Lawrence Yun predicts rates at 6.7% through 2025, down to 6% in 2026, but only with multiple cuts. Experts emphasize that while Fed cuts lower short-term costs like credit cards, mortgages hinge on long-term sentiment.
Expert Perspectives: Cautious Optimism Amid Volatility
Housing analysts urge realism. “Don’t expect mortgage rates to follow [the cut] immediately,” says CBS News, as investor bond trading and inflation outlooks dominate. Ivy Zelman notes affordability strains—60% of median income for housing costs—could worsen if rates rebound, locking out buyers. On the flip side, Oxford Economics’ Bob Schwartz sees potential for a housing “unlock” if rates hold low, boosting sales frozen by pandemic-era lows.
For borrowers, timing is key: Lock in now if rates suit, as waiting risks missing opportunities. “Even with a rate cut, mortgage rates may stabilize or even rise if inflation remains persistent,” per The Economic Times.
Navigating Uncertainty: What Borrowers Should Do Next
The expected Fed cut offers hope but no guarantees for mortgage relief—rates could bounce higher if economic signals sour. With forecasts eyeing 6.5%-6.7% through year-end, prospective buyers should monitor yields closely and consult lenders for personalized quotes. Policymakers’ balancing act between inflation and growth will shape the path ahead, reminding us that in finance, expectation often trumps action. As the housing market thaws, will this cut catalyze affordability, or merely tease it? Homeowners and aspiring ones alike must weigh readiness against the risks of delay.