What Would Help Mortgage Rates Fall More Than the Fed

Buying a home is the most visible way the average person interacts with the cost of borrowing. (Brandon Bell/Getty Images)

Mortgage rates are likely to tick up even as the Federal Reserve said on Wednesday its target interest rate would remain unchanged. But what really matters for home financing costs is economic data and the market outlook in the run-up to September’s meeting.

President Donald Trump over the past month has ramped up calls for the Fed to reduce its federal-funds rate range, currently between 4.25% and 4.50%. Before the Fed’s announcement, Trump urged the Fed to lower interest rates. “Let people buy, and refinance, their homes!” he wrote on social media.

It might not be that simple. A reduction in the target rate would lower the short-term cost of borrowing money. But mortgage rates, which tend to move with the 10-year Treasury yield, are based more on forward-looking economic and monetary expectations than the Fed decision itself.

“We don’t set mortgage rates at the Fed,” Fed chair Jerome Powell said during a press conference following the Federal Open Market Committee meeting. “It’s not that we don’t have any effect. We do have an effect but we are not the main effect.”

Take the central bank’s long-anticipated rate cut last year. Mortgage rates measured by Mortgage News Daily in the run-up to last September’s Fed meeting fell to about 6.1%, its lowest level since early 2023—but didn’t stay there for long.

Mortgage rates climbed several weeks later, in part because of “a rebound in short-term rates that indicate the market’s enthusiasm on rate cuts was premature,” Sam Khater, Freddie Mac’s chief economist, said at the time.

Buying a home is perhaps the most visible way the average person interacts with the cost of borrowing. And, for the better part of three years, financing costs have been one of the big impediments to the housing market. “Activity in the housing sector remains weak,” Powell said at the press conference.

Mortgage rates fell to historic lows during the pandemic, then rose swiftly in mid-2022 as inflation ramped up and the Fed tightened monetary policy. The rates have been lodged between about 6.5% and 7% since late October, according to Freddie Mac’s weekly survey. Combined with historically high home prices, the recent level of rates is a big contributor to the stalled housing market.

Mortgage rates look likely to remain near recent levels. The 10-year Treasury yield, a benchmark for mortgage rates, rose to 4.377% on Wednesday, according to Dow Jones Market Data, the highest level since Monday, but still 0.200 percentage point lower year to date.

“The market wanted some forward guidance on a rate cut,” says John Toohig, Raymond James’ head of whole loan trading. “It looks as if they are going to be disappointed.”

Incoming data before the September FOMC meeting could move mortgage rates one way or another. Since the 10-year Treasury yield moves in reaction to economic data, inflation, and shifts in monetary policy, mortgage rates could change as data influences what traders expect.

Of particular importance for potential buyers will be employment and inflation data. Indications of easing inflation or softening in the job market could lead to lower mortgage rates, while the opposite could send them higher.

“In coming months we will receive a good amount of data that will help inform our assessment of the balance of risks and the appropriate setting of the federal-funds rate,” Powell said at the conference.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com