January 2026 Newsletter— Fed Rate Cuts vs. Mortgage Rates: What You Should Know

Fed Rate Cuts vs. Mortgage Rates: What You Should Know

If the Federal Reserve lowers interest rates, does that mean mortgage rates will drop too?

Short answer: not necessarily.

Mortgage rates don’t automatically follow Fed rate cuts. In fact, after the Fed’s most recent rate decrease, 30-year mortgage rates barely moved. That’s because mortgage rates respond more to broader economic forces—things like inflation expectations, the bond market, and overall investor confidence—rather than moving in lockstep with the Fed’s benchmark rate.

The Fed influences the cost of borrowing, but it doesn’t directly control long-term mortgage rates.

Another important piece to understand: mortgage markets often move ahead of Fed decisions. If investors expect the Fed to ease rates, lenders may adjust pricing before the Fed actually meets. We saw this recently—much of the expected Fed easing was already “priced in,” which helped push mortgage rates down from their peak above 7% in 2023 to the mid-6% range by the end of the year.

That’s why a single Fed announcement doesn’t usually lead to an overnight drop in mortgage rates. By the time the Fed officially acts, lenders have often already adjusted. Mortgage rates are driven by expectations around inflation, employment, and economic strength—not just the Fed’s moves.

Looking ahead, most experts expect mortgage rates to decline gradually, not dramatically. Some forecasts suggest we could see 30-year rates dip below 6% at some point next year, but that would happen slowly as economic conditions continue to improve.

Personally, I don’t expect we’ll see 3% mortgage rates in 2026 or maybe ever. That said, rates have come down from their peak and are sitting at levels many economists consider manageable. Historically speaking, a 6% mortgage rate is still solid. My first mortgage was 14%, then 9%, and then 7.5%. Who remembers those days?

Predictions for a stronger real estate market in 2026 are encouraging—and as we often tell both buyers and sellers, the “perfect” time to buy or sell isn’t about chasing rates or headlines.

It’s when you’re ready!

Cheers to a wonderful New Year.