With the Federal Reserve’s June 18 decision to hold interest rates steady making headlines, you’ve likely heard clients ask where mortgage rates are headed, and whether the Fed is behind them. And the answer is . . . sort of.
While the Fed controls a key interest rate — the federal funds rate — it doesn’t directly set mortgage rates. However, its decisions send signals to the financial markets, and those signals ripple through the economy in ways that do affect home loans.
In this post, we’ll break down:
What the Fed actually controls
How mortgage rates are influenced (but not dictated) by the Fed
Why mortgage rates can still shift even when the Fed doesn’t act
What the Fed’s current decisions mean for your clients
✅ TL;DR for Busy Agents:
The Fed kept the federal funds rate unchanged on June 18 due to economic uncertainty.
This rate impacts short-term borrowing between banks, not mortgage rates directly.
Mortgage rates tend to follow the 10-year Treasury yield, which reacts to market expectations about the Fed, its funding rate, and inflation.
Market uncertainty, global events, and investor sentiment also move mortgage rates — sometimes before the Fed even acts.
The current situation may change options for buyers and require more creativity from agents advising clients both on the buying and listing sides.
🏛️ What the Fed Actually Does
The Fed’s main job is to keep the economy balanced—by targeting low inflation and high employment. Per Yahoo Finance, to accomplish those goals, it adjusts the federal funds rate, which is the interest rate banks charge each other for overnight loans.
Lowering this rate encourages borrowing and spending, which in turn boosts the economy and employment.
Raising it slows things down to tame inflation.
The Fed meets eight times a year to decide whether to raise, lower, or hold this rate based on the latest economic data.
💸 How Mortgage Rates Are (and Aren’t) Tied to the Fed
Mortgage rates don’t change just because the Fed does something, but they often move in response to it. The key link is the 10-year U.S. Treasury yield —think of it as a global benchmark for all things finance.
This yield typically mirrors the direction of the federal funds rate. And since mortgage lenders use it as a benchmark, 30-year fixed mortgage rates tend to follow its lead. Though, mortgage rates are usually higher to account for risk and longer loan terms. Figure 1 shows the relationship between these rates:
Figure 1: Fed. funds rate (dotted) vs. 10-year U.S. Treasury yield (teal) vs. 30-year fixed rate mortgage average (dark blue) (2018-2025)
🔍 Why Mortgage Rates Move Even When the Fed Doesn’t
Even when the Fed pauses, mortgage rates can still rise or fall. That’s because markets care more about where things are going than where they are now.
A few reasons mortgage rates shift independently:
Investors react to economic data and uncertainty.
Markets often try to predict future Fed moves before they happen.
Global events (like conflicts or central bank actions abroad) can also influence U.S. Treasury yields.
For example, in 2022, the 10-year yield and mortgage rates started climbing before the Fed raised rates — because the market anticipated it.
🗣️ What This May Mean for Clients
While rates may fluctuate, they are not likely to drop far without the Fed’s help. When your clients ask about what the Fed’s current policy means for their home-buying/selling, here are a few highlights to communicate:
- Buyers may need to consider different, more affordable options to stay within budget.
- Higher rates can lead to fewer buyers in the market. Therefore, more time, creativity, and flexibility may be needed from your sellers to seal the deal.
- Overall, mortgage rates are unlikely to change quickly and will likely not match pre-2022 levels in the medium term.