How the Federal Reserve Affects Mortgage Rates

For mortgage interest rates, Federal Reserve policy wields an indirect influence, along with inflation and jobs.

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Updated Mar 18, 2026

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The Federal Reserve influences mortgage rates, but doesn't set them. On March 18, 2026, the central bank left the federal funds rate unchanged at a range of 3.5% to 3.75%.

This is the Fed’s effort to steady the ship in uncertain economic times, following a joint military operation in Iran by the United States and Israel that began on Feb. 28. Markets have been bracing for rising inflation since then, driven by a spike in oil prices — a force that ripples through the economy to affect mortgage rates.

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 April 28-29.

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.

Since the war in Iran began, mortgage rates have been trending upward as markets brace for rising inflation. Disruptions in the Strait of Hormuz have choked off the global supply of oil, causing a spike in oil prices. Higher energy costs make it more expensive to produce and ship goods, which nudges inflation upward.

Meanwhile, the labor market is fairly stagnant. Job gains have remained low in recent months, and the unemployment rate hasn’t changed much.

For the Fed, keeping the federal funds rate steady for now is the safe move. When the road ahead looks foggy, this isn’t the time to make any sudden turns.

» 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.

The Fed last cut rates at its Dec. 9-10 meeting, when the central bank reduced the federal funds rate by a quarter of a percentage point. Mortgage rates remained steady around 6% in January and February, even dropping into the high-5% range. However, mortgage rates have been on the rise since the war in Iran began. Further cuts from the Fed don’t seem likely anytime soon.

Given global tensions and the uncertainty that follows, most analysts are predicting the Fed will make only one cut — or even no cuts at all — for the remainder of 2026.

» 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.

Prime Rate, Effective 12/11/25

Current prime rate — last changed Dec. 2025	Prime rate last week	Prime rate in the past year — low	Prime rate in the past year — high	Projected median prime rate for 2026
6.75%	6.75%	6.75%	7.5%	6.4%

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