The Federal Reserve cut interest rates by a quarter point Wednesday, the first time it’s reduced them this year, in a highly anticipated move that comes as the central bank wrestles with softening employment and stubborn inflation.
Looking ahead, a majority of the 12-member Federal Open Market Committee expects to make two more 0.25% cuts this year as the body seeks to achieve its dual goals of maximum employment and low inflation. The most recent economic data shows softening employment and rising inflation, which rose to 2.9% in August. The Fed’s targeted rate of inflation is 2%.
The cut to the federal funds rate from 4.25% to 4% does not directly affect mortgage rates. Rather, it trickles through the financial sector and influences them indirectly, so home shoppers should not expect to see immediate relief.
“The Fed’s rate cut is encouraging news, but it doesn’t automatically mean mortgage rates will follow,” said Erika Villegas, Chicago Association of REALTORS® president and broker/owner of RE/MAX In The Village. “Each lender and banking institution sets its own mortgage rates, so we encourage buyers to explore their options and compare terms.”
In fact, mortgage rates have already declined in anticipation of today’s announcement. The average contract interest rate for a 30-year mortgage fell to 6.39% last week, its lowest level since October 2024. Borrowers took advantage of the lower rate as seen in the Mortgage Bankers Association’s latest release, which showed mortgage applications jumped 29.7% in the week ended Sept. 12.
“The Federal Reserve rate cut this week has already been priced into mortgage rates, so the immediate impact will be minimal,” Cotality Chief Economist Selma Hepp said. “However, while a single rate cut may not cause a significant additional drop, a series of anticipated cuts for the rest of 2025 and into 2026 could continue to put gradual downward pressure on mortgage rates.”
Hepp expects mortgage rates to continue to decline toward 6% by the end of the year, although she still expects them to remain above 6%. She added that if the labor market shows further weakness or inflation slows, it reinforces the case for further rate cuts, which could lead to sustained reductions in borrowing costs.
Tim Weisheyer, 2025 Florida REALTORS® president and broker-owner of Dream Builders Realty, cautioned home shoppers not to wait too long for the “perfect” rate, however.
“My advice to consumers remains the same: don’t miss out on your opportunity to build equity,” Weisheyer said. “Focus on what you can control, like your financial readiness … The sooner you get in, the sooner you start building long-term wealth.
“For Realtors, this is an opportunity to help your clients understand the market, set realistic expectations, and be ready to act.”