As expected, the Federal Reserve did not make any changes to the federal funds rate during its January meeting. That isn’t necessarily bad news for mortgage rates either.
“The Fed is the weather, not the thermostat,” says Dan Snyder, CEO of mortgage lender Lower.
In other words, the Federal Reserve doesn’t set mortgage rates, but its actions reflect current economic conditions. More important than its decision might be the general sentiment as to which way the economy is headed. When it comes to mortgage rates, stability is a good thing, according to Snyder.
[Compare: Compare Current Mortgage Rates]
The Federal Reserve and Mortgage Rates
The Federal Reserve sets only one interest rate: the federal funds rate. This is the amount of interest financial institutions charge one another for borrowing money overnight.
After reducing the federal funds rate at its last three meetings, the Federal Reserve Board voted to maintain the current target range of 3.5% to 3.75%.
While the federal funds rate is not directly tied to consumer lending, it can influence other interest rates, such as those for mortgages. However, the two don’t always move in tandem. In fact, in 2024, at a time when the federal funds rate dropped by one percentage point, mortgage rates actually increased.
Mortgage rates are more closely tied to the 10-year Treasury yield than the federal funds rate. However, lenders ultimately set their rates based on a variety of factors such as credit risk, inflation risk and profit.
[Read: Best Mortgage Lenders]
Messaging Just as Important as Rates
President Donald Trump has been vocal about his belief that the Federal Reserve should be more aggressive in lowering interest rates, but not everyone believes that is needed to lower the cost of mortgages.
“I think what matters is the messaging,” says Matt Weaver, vice president of sales for CrossCountry Mortgage. He says the decision of the Fed to maintain interest rates is less important than the way its decision is framed.
Markets, including the housing market, can respond to news even if nothing has changed in the economy. That was seen in Trump’s recent announcement directing Fannie Mae and Freddie Mac to purchase up to $200 billion in mortgage bonds.
“That in and of itself created a lot of confidence,” Weaver says.
Even without the bond purchase taking place yet, the announcement spurred significant activity within the mortgage market, according to Weaver. Mortgage rates for 30-year loans also briefly dipped below 6% for the first time in three years in the wake of that news.
[See: Best Mortgage Lenders for First-Time Homebuyers]
Fed Hits Note of Cautious Optimism
In a statement announcing its decision to maintain interest rates, the Federal Reserve Board noted, “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated.”
There was no immediate reaction from the markets, suggesting the news was no surprise. Snyder notes that markets like stability, so keeping the federal funds rate at the status quo isn’t likely to have much impact on mortgage rates.
A bigger question for the housing market may be how consumers interpret the news. “The swirl of consumer sentiment is a real thing,” Snyder says.
Consumers are more likely to make a major purchase when they feel confident about the direction of the economy. Weaver estimates that more than 70% of homeowners are not currently in their ideal home. However, people may not be likely to make a move if they are reading negative headlines and hearing mixed messages from leaders.
Mortgage Rate Predictions for 2026
While the federal funds rate remains the same for now, Powell didn’t rule out future cuts, saying, “After the three recent rate cuts, we are well-positioned to address the risks we face on both sides of our dual mandate and will continue to make our decisions meeting by meeting, based on the incoming data and the implications and outlook of balances and risks.”
The housing market has been flat for about three years — trapped in what Weaver calls a “purgatory.” However, he sees promise in the fact that new initiatives are being proposed by the president and others to help jump-start housing sales. “When it’s being brought to the forefront, that is the recipe for getting people more interested in purchasing,” he says.
As for the rates themselves, Snyder predicts they will land between 5.5% and 6.25% this year. Still, people shouldn’t base their decision to buy a home on mortgage rates alone.
“If you’re going to buy a house, go buy a house,” Snyder says. “It’s the best investment you can make.”
More from U.S. News
How to Refinance a Rental Property
How to Shop for a Mortgage Without Hurting Your Credit Score
Historical Mortgage Rates: See Averages and Trends by Decade
The Fed Holds Steady: Could That Be Good News for the Housing Market? originally appeared on usnews.com