A Mortgage Nerd’s Guide to What’s Haunting the Fed

Whether you’re buying a house or hoping to refinance, it pays to know how the Federal Reserve affects mortgage rates. Even a basic understanding helps you plan a smarter budget.

At the very least, it boosts your chances in the current events round at pub trivia.

The Fed meets next on Oct. 28-29 and is widely expected to reduce the federal funds rate by 25 basis points. (A basis point is one one-hundredth of a percentage point, so 25 basis points is 0.25 percentage point.)

But just in time for spooky season, the vibe is a little unsettling. Even if the Fed summons rate relief, the ghost of inflation lingers in the shadows — and no one wants a jump scare.

Here’s what the Fed’s next move means for your mortgage.

I need the basics. Does the Fed set mortgage rates?

No, the Federal Reserve doesn’t set mortgage rates, but it does influence them.

Imagine a messy group chat where everyone’s trying to make dinner plans — that’s like all the forces affecting mortgage rates. The Fed is your type-A friend who keeps up with the chaos and drops the calendar invite. Maybe the whole thing wasn’t their idea, but they know how to wrangle the conversation into something concrete.

As the nation’s central bank, the Fed’s job is to keep the economy steady. To do that, the committee of central bankers meets roughly every six weeks. If they had a chaotic group chat — and honestly, I love to imagine they do — the central bankers would share hot takes on inflation, consumer spending and the job market (more on that last one in a minute).

Based on that data, the committee sets the federal funds rate, which sets the trend for other types of loans like mortgages.

From there, each mortgage lender sets its own interest rate. That’s why your local credit union will quote you a different rate than an online-only bank. You’ll save money if you compare mortgage lenders when shopping for a mortgage — at least three is a good start.

OK, so what’s the tea on the October meeting?

Right now, the lack of job market data makes it feel like someone ghosted the group chat. Due to the government shutdown, the U.S. Department of Labor was unable to release its monthly report on hiring and unemployment data in October. To understand how big of a deal that actually is, I asked fellow nerd Elizabeth Renter, NerdWallet’s senior economist.

“Determining where the economy is headed is a difficult task even when there is recent data, but it’s monumental in the absence of data,” Renter said in an email.

In short, the Fed is tiptoeing in the dark. Overly aggressive rate cuts could awaken the specter of inflation they’ve been working to tame. Higher inflation would spell bad news for home buyers whose budgets are already stretched thin.

Does a Fed rate cut mean lower mortgage rates?

Markets have been anticipating a rate cut at the Fed’s October meeting, so lenders have already “priced in” lower mortgage rates. The average rate on a 30-year fixed-rate mortgage has fallen for four straight weeks, according to rates provided to NerdWallet by Zillow, landing at an average 6.06% APR for the week ending Oct. 23.

That’s welcome relief for homeowners who locked in a rate above 7% in recent years. Generally, the benefits start to outweigh the costs of refinancing when you knock 0.5 percentage points or more off your existing rate. So if your existing mortgage rate is 6.6% or above, now might be a good time to refinance. Try plugging your information into a refinance calculator to see for yourself.

What might happen next?

A Fed rate cut doesn’t make mortgages more affordable overnight, but it sets the tone for some much-needed optimism.

Looking ahead, Renter says mortgage rates could remain steady as investors largely anticipate another rate cut at the December Fed meeting. Currently, about 93% of investors agree we’ll see another 25-basis-point cut in the last month of the year, according to CME Group’s FedWatch tool.

But that certainty could change if the ongoing government shutdown continues. Without federal jobs data, a rate cut may be less likely, Renter notes, as the Fed seeks to avoid less-informed judgment calls that might ultimately hurt the economy.

Should I wait for a rate cut to buy a house?

As a mortgage nerd, I follow Fed meetings like Swifties follow album drops — decoding every line and looking for clues. (On that note, is it a coincidence that sub-3% mortgage rates first appeared when Folklore dropped? Because no matter how hard we want it, neither era is coming back.)

Even the most seasoned market watchers can’t predict exactly what mortgage rates will do next. So if you’re serious about buying a home, stop doom-scrolling rate forecasts and start fine-tuning your own finances.