Mortgage Rates Rise Despite Federal Reserve Interest Rate Cuts

The disconnect between falling federal funds rates and climbing mortgage rates is driven by inflation concerns and bond market dynamics.

The Federal Reserve has cut its benchmark interest rate by a full percentage point since September 2024, but mortgage rates have increased over the same period.
The average 30-year fixed mortgage rate rose to 6.85% this week, up from 6.09% in mid-September, while refinance rates climbed to 6.99%.
Mortgage rates are influenced more by 10-year Treasury yields than by the federal funds rate, as they reflect long-term inflation and economic growth expectations.
Persistent inflation and concerns about U.S. debt and deficits have kept bond yields elevated, pushing mortgage rates higher despite rate cuts by the Fed.
Investors also demand higher returns on mortgages due to increased prepayment risks and uncertainty in the housing market.