There’s a lot of uncertainty in today’s economy, but one thing is certain: The Federal Reserve isn’t planning to lower interest rates before the spring homebuying season. If you’re in the market for a new home, average mortgage rates are projected to stay above 6% for a while.
At its meeting on March 19, the Fed is expected to continue its pause on interest rate cuts to monitor the economic impact of President Donald Trump’s tariffs, immigration policies and federal layoffs. That would keep mortgage interest rates — which are sensitive to fiscal policy and economic growth — higher for longer.
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“Borrowing costs are important to prospective homebuyers,” said Ali Wolf, chief economist at Zonda and New Home Source. Cheaper interest rates make financing a home more appealing, opening up the market to first-time buyers as well as existing homeowners seeking to move.
The “wait and see” approach of policymakers isn’t entirely to blame for an unaffordable housing market, which remains plagued by limited inventory and steep home prices. For better or worse, the Fed’s relationship to home loan rates isn’t direct or immediate, either. “While the Fed certainly can influence mortgage rates, investors are the true movers,” said Wolf.
When it comes to the mortgage market, what the central bank says matters more than what it does. On Wednesday, investors and bond market traders will be on the lookout for the Fed’s updated Summary of Economic Projections, which outlines future monetary policy based on economic growth, inflation and the job market.
“If the Fed communicates any kind of shift in their economic projections or the future path of short-term rates, mortgage rates can fluctuate,” said Wolf. For example, bond yields and mortgage rates could increase if Fed Chair Jerome Powell signals concerns about rising inflationary pressures. But mortgage rates could drop if Powell speaks about heightened recession risks or a slowing economy.
Read more: Fact Check: Trump Doesn’t Have the Power to Force Lower Interest Rates
How does the Fed influence mortgage rates?
The Fed sets and oversees US monetary policy under a dual mandate to maintain price stability and maximum employment. It does this largely by adjusting the federal funds rate, the rate at which banks borrow and lend their money.
When the economy is in a slump or downturn, the Fed reduces interest rates to stimulate consumer spending and propel growth, as it did during the COVID-19 pandemic.
In an inflationary environment, the Fed raises interest rates to slow economic growth. For example, the Fed raised its benchmark interest rate by more than five percentage points between early 2022 and mid-2023 to combat inflation by curbing consumer borrowing and spending.
Though the Fed doesn’t set mortgage rates, altering the price of credit causes a slow domino effect on mortgage rates and the broader housing market. Banks typically pass along the Fed’s rate hikes or cuts to consumers through longer-term loans, including home loans.
Because mortgage rates respond to several economic factors (see below), it’s not uncommon for the federal funds rate and mortgage rates to move in different directions for some time.
Read more: Why Labor Data Matters for Mortgage Rates and the Fed
How will Fed rate cuts affect mortgage rates?
In 2024, the Fed slashed interest rates three times for a total of one percentage point. At the start of 2025, it held them steady to “carefully assess incoming data, the evolving outlook and the balance of risks.” The Trump administration’s economic agenda and trade wars, expected to fuel price growth at a time when inflation remains sticky, continue to cloud the outlook for rate reductions.
Though the Fed is currently projecting two 0.25% cuts in 2025, that could change this week. According to the CME FedWatch Tool, investors are betting on the next rate cut in June or July. For the Fed to resume lowering interest rates, however, policymakers would need to see an ongoing decline in inflation or a rapid deterioration of the labor market.
Today’s turbulent political and economic environment is already sparking concerns among investors that the US may be headed toward a recession. Over the last month, the stock market has plunged, mass layoffs have hit public and private sectors, households have cut spending and consumer confidence has slumped.
Wolf said a dramatically cooling economy or a further souring of consumer, business, and investor sentiment could push mortgage rates lower. However, mortgage rate movement is always volatile, and the dips won’t be drastic. Most housing market experts see average 30-year fixed rates staying between 6% and 7% throughout most of 2025.
Though mortgage rates typically fall during tough economic times, a recession won’t lead to a more affordable or accessible housing market. If US families are struggling with the impact of higher prices and decreased purchasing power, not to mention a lack of stable employment, they’ll be less likely to buy homes.
“Consumers need to feel comfortable in their financial well-being to make the largest purchase of their lives,” said Wolf.
What other factors affect mortgage rates?
Mortgage rates move around for many of the same reasons home prices do: supply, demand, inflation and even the employment rate.
Personal factors, such as a homebuyer’s credit score, down payment and home loan amount, also determine one’s individual mortgage rate. Different loan types and terms also have varying interest rates.
Policy changes: When the Fed adjusts the federal funds rate, it affects many aspects of the economy, including mortgage rates. The federal funds rate affects how much it costs banks to borrow money, which in turn affects what banks charge consumers to make a profit.
Inflation: Generally, when inflation is high, mortgage rates tend to be high. Because inflation chips away at purchasing power, lenders set higher interest rates on loans to make up for that loss and ensure a profit.
Supply and demand: When demand for mortgages is high, lenders tend to raise interest rates. This is because they have only so much capital to lend out in the form of home loans. Conversely, when demand for mortgages is low, lenders tend to slash interest rates to attract borrowers.
Bond market activity: Mortgage lenders peg fixed interest rates, like fixed-rate mortgages, to bond rates. Mortgage bonds, also called mortgage-backed securities, are bundles of mortgages sold to investors and are closely tied to the 10-year Treasury. When bond interest rates are high, the bond has less value on the market where investors buy and sell securities, causing mortgage interest rates to go up.
Other key indicators: Employment patterns and other aspects of the economy that affect investor confidence and consumer spending and borrowing also influence mortgage rates. For instance, a strong jobs report and a robust economy could indicate greater demand for housing, which can put upward pressure on mortgage rates. When the economy slows and unemployment is high, mortgage rates tend to be lower.
Is now a good time to get a mortgage?
Even though timing is everything in the mortgage market, you can’t control what the Fed does. “Forecasting interest rates is nearly impossible in today’s market,” said Wolf.
Regardless of the economy, the most important thing when shopping for a mortgage is to make sure you can comfortably afford your monthly payments.
