Why Fed Rate Cuts Don’t Always Mean Lower Mortgage Rates in 2025

By Andrew Duncan

Andrew Duncan is the Founder, CEO and Co-Owner of Tampa’s Best Real Estate Agent Team, The Duncan Duo, the Host of The Duncan Duo Real Estate Show Sundays at 10am on 970AM WFLA. As the team’s Founder, CEO & Co-Owner, Andrew’s focus is on the growth of the company, marketing and promotion initiatives as well as motivating and coaching the team’s agents and leadership.

When it comes to mortgage rates, there’s a lot of confusion. Many people think that when the Fed cuts rates, mortgage rates will automatically drop, but that’s not how it works. Here’s a breakdown of how mortgage rates actually respond to the Fed’s decisions and what you should know.

The Fed rate and mortgage rates aren’t always directly linked. There’s a common misconception that when the Fed cuts rates, mortgage rates will immediately follow. In reality, the two aren’t directly linked.

For example, if the Fed announces a 25 basis point rate cut, most of the market has already priced that in. This means mortgage rates might not change much because the market had already anticipated the cut.

“Even with Fed rate cuts, mortgage rates are more affected by long-term factors like Treasury yields and bonds.”

Treasury yields and bonds drive mortgage rates. While the Fed’s decisions impact short-term interest rates, mortgage rates are really driven by Treasury yields and bonds. These long-term factors have a bigger influence on how mortgage rates are set.

So, if the Fed continues to cut rates, mortgage rates could gradually decrease over time. But this is not a guarantee, and it will not happen immediately. When the Fed cuts rates, it’s likely going to affect things like credit cards and lines of credit pretty quickly, but not so much in mortgage rates.

A bigger rate cut could lead to a quicker drop in mortgage rates. If you’re waiting for mortgage rates to drop in response to the Fed’s rate cuts, it’s important to manage expectations. If the Fed cuts by 50 basis points, which is larger than expected, you might see a quicker drop in mortgage rates because the market wasn’t expecting it. However, smaller or more predictable rate cuts won’t lead to an immediate change in mortgage rates.

It’s useful to pay attention to the Fed’s announcements, as they provide insight into overall market trends. But mortgage rates depend on more than just the Fed. Treasury yields and other long-term factors have a much bigger influence. So, while there’s no guarantee that mortgage rates will drop right away, keeping an eye on these things will give you a clearer idea of where things are headed.

If you have any questions about how mortgage rates might impact your options or want to discuss your mortgage strategy, feel free to reach out to us at 813-359-8990 or info@theduncanduo.com. We’re here to help you navigate through these changes and make the best decision.