What Federal Rate Cut Could Mean for Your Mortgage
The Federal Reserve is widely expected to announce its first rate cut of the year when it closes its meeting on Wednesday, as concern over the slowing economy and a weaker job market has grown in recent weeks.
The move could provide some immediate relief to Americans who have been struggling with the sky-high borrowing costs for the past few years—especially in the housing market. But there are also potential downsides, experts say, including the risk of further inflation.
What Can We Expect From the Fed’s Meeting?
The Fed has kept interest rates unchanged at 4.25-4.5 percent since December.
Despite a recent rise in inflation, weaker-than-expected employment data is likely to push the Fed to cut its benchmark rate when it meets this week—the rate at which banks borrow and lend to one another overnight. This then has an impact on the rates that consumers pay, including mortgage rates.
For many—including President Donald Trump—a rate cut is a move they have been waiting for months now.
Federal Reserve Chairman Jerome Powell answers questions from reporters following the regular Federal Open Market Committee meetings at the Fed on July 30, 2025 in Washington, D.C.
Chip Somodevilla/Getty Images
“The upcoming September Federal Reserve Open Market Committee’s (FOMC) meeting might be one of the most anticipated in years,” Bankrate Financial Analyst Stephen Kates said in a statement shared with Newsweek.
“The FOMC members have been under intense scrutiny all year amid tariff announcements, rising inflation, a slowing labor market, and increased political pressure. A 0.25 percent rate cut now seems all but guaranteed, but it may be delivered through gritted teeth.”
Divisions among governors have recently emerged within the Fed, which is under significant pressure from Trump, who tried to fire governor Lisa Cook over allegations of mortgage fraud—a charge she has denied.
Some governors would rather keep borrowing costs as they are, while others are pushing for even bigger cuts than a quarter point—and Chair Jerome Powell is likely to be caught in the middle of this dispute.
What Would a Cut Mean for Homebuyers?
While the Fed does not set mortgage rates, its decisions also impact the broader lending environment.
Mortgage rates shot up in 2022 following the Fed’s aggressive rate-hiking campaign to combat inflation, and have been between 6 percent and 7 percent ever since. But recently, as the market became convinced that the Fed will soon lower its rates, mortgage rates started to fall.
As of September 11, the average 30-year fixed-rate mortgage was 6.35 percent, the lowest it has been in months, according to Freddie Mac data.
This recent drop means that, while homebuyers have long been hoping for a rate cut, the Fed’s decision “is unlikely to make a noticeable difference for most consumers at the time of the announcement,” Kates said.
“For prospective homebuyers, much of the impact on mortgage rates has already occurred through anticipation alone. Rates have been falling since January and dropped further as weaker-than-expected economic data pointed to a cooling economy and increased the likelihood of a Fed cut.”
Still, a downward trend for interest rates would provide some relief for borrowers in the coming weeks and months.
“Whether it is a homeowner with a 7 percent mortgage or a recent graduate hoping to refinance student loans and credit card debt, lower rates can ease the burden on many indebted households by opening opportunities to refinance or consolidate,” Kates said.
But cutting rates could have the unwanted impact of further bringing up inflation. According to Kates, savers and those with tight household budgets are more likely to feel the downside of a rate cut.
“Falling interest rates will begin to erode the attractive yields currently available on savings products,” he said. “A rate cut also sends a signal that the Fed is stepping back, however slightly, from its fight against inflation.”
Additionally, a split decision from the Fed or one that somehow does not match the market’s expectations could spook that market, which could send mortgage rates up again.
“After the Fed meeting I expect that mortgage rates are more likely to steady or even edge higher because markets are positioned to expect relatively more easing and could be disappointed by the Fed’s forward guidance,” Realtor.com‘s chief economist, Danielle Hale, said in a recent report.
Right now, according to Kates, the U.S. economy “is caught between a rock and a hard place—or more accurately, between a labor shock and a hot pace,” he said. “A weakening labor market is competing for attention with persistently rising inflation.”