How the Federal Reserve Affects Mortgage Rates

The Federal Reserve influences mortgage rates, but doesn't set them. On Jan. 28, 2026, the central bank left the federal funds rate unchanged at a range of 3.5% to 3.75%.

The news release accompanying the announcement left the door open for the possibility of future cuts, noting that "the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

Mortgage rates are influenced by many elements, including the inflation rate, the pace of job creation, and whether the economy is growing or shrinking. The Federal Reserve's monetary policy is a factor, too, and is set by the Federal Open Market Committee.

What the Federal Reserve does

The Federal Reserve is the nation's central bank. It guides the economy with the twin goals of encouraging job growth while keeping inflation under control.

The FOMC pursues those goals through monetary policy: managing the supply of money and the cost of credit. Its main monetary policy tool is the federal funds rate, which is the interest rate that banks charge one another for short-term loans. Although there's no such thing as "federal mortgage rates," the federal funds rate influences interest rates for longer-term loans, including mortgages.

The FOMC meets eight times a year, roughly every six weeks, to adjust monetary policy. Its next scheduled meeting is March 17-18.

The Federal Reserve, mortgage rates and the economy

Mortgage rates respond to a variety of economic signals. Among the most important factors are the availability of jobs, along with how fast prices are rising — two things the Fed doesn’t directly control, but aims to keep in balance by setting monetary policy.

Consumer confidence in the economy fell sharply this month, mostly driven by uncertainty about the job market. Despite the bad vibes, economic data isn’t flashing any urgent warning signs. Inflation is up slightly, but is still in line with expectations. And while hiring has been slow, unemployment is improving.

If it sounds like these economic factors balance each other out — well, that’s why the Fed kept the federal funds rate steady. With its wait-and-see approach, the committee has signaled that conditions are stable enough to let its last three rounds of cuts work their way through the economy.

Things unrelated to the Fed can move mortgage rates, too. For example, rates dipped in January after news of a possible federal purchase of mortgage-backed securities, a move that would make it easier for lenders to offer lower rates. For now, mortgage rates remain relatively low, and any further declines are more likely to come from new developments in financial markets than from the latest Fed decision.

» MORE: How mortgage rates are determined

Do mortgage rates follow Fed rates?

The Fed and the mortgage market move like dance partners: Sometimes the Fed leads, sometimes the mortgage market leads, and sometimes they dance on their own.

In the Fed's previous meeting, on Dec. 9-10, the central bank reduced the federal funds rate by a quarter of a percentage point. Since then, mortgage rates have been relatively stable, moving up and down in small increments.

» MORE: Compare current mortgage interest rates

Federal funds rate and HELOCs

Although there's merely an indirect link between mortgage rates and the federal funds rate, the Fed does have a direct influence on the rates charged on home equity lines of credit, which typically have adjustable rates.

Interest rates on HELOCs are linked to the Wall Street Journal prime rate, which is the base rate on corporate loans by the largest banks. The prime rate, in turn, moves with the federal funds rate.