Current Thinking on Mortgage Rates

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Orion reminds our brokers to remind their clients that the Federal Reserve, the “central bank” of the United States, does not set mortgage rates. That said, as brokers know, mortgage rates do indeed tend to move in the same direction as Fed rate expectations. This is mostly because the two share the same knowledge of the economy and many common motivations and not because mortgage rates are waiting for a change in the actual fed funds rate. Many remember a prime example: in late 2024 mortgage rates hit long term lows, only to begin moving higher when the Fed finally cut rates.

Rates continued to be driven by opinions of how unemployment or inflation data change the Fed’s thinking. At this time, it is generally believed that the Federal Reserve will cut benchmark interest rates in September.

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Good News for Mortgage Rates

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There is good news for potential borrowers. Mortgage rates drifted lower last week, hitting the lowest level since October 2024. We focus on our service and products, and competitive pricing, so watch interest rates. In general, depending on loan-to-values, credit scores, and many other factors, 30-yearmortgage rates are in mid-6’s and 15-year loans are in the high 5 percent area. Mortgage rates are falling now after hiring data released in early August showed weak job growth in recent months. In response to the job weakness and data showing inflation in July was still sticky, but below economists’ expectations, traders see a 91 percent chance of the Fed dropping interest rates by 25 basis points next month.

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Softer economic data make Federal Reserve interest rate cuts more likely, but that doesn’t mean 30-year, or 15-year mortgage rates will follow them down. The bond market is propping up mortgage rates, as traders are betting the Fed may only lower rates a few times rather than undertake an aggressive cycle of rate cuts. If there were signs that tariff impacts would significantly damage the economy, the Fed would have more wiggle room to cut interest rates aggressively, and bond traders would likely help bring long-term rates down.

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Economy on Mortgage Rates

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Right now, analysts say, the economy doesn’t seem to be weakening enough to warrant that type of action. In fact, many don’t believe fixed-rate mortgage rates will move much at all in the coming months. In fact, mortgage rates could even rise if tariffs end up pushing up inflation substantially. The Federal Reserve will raise rates to slow inflation.

Rates on a 15 or 30-year mortgage are based heavily on investors' expectations of the economy and inflation over the next decade, not on the Fed’s near-term actions. Economic growth forecasts, inflation, demographics, and U.S. fiscal deficits all impact Treasury yields, which impact mortgage rates. In fact, the U.S. central bank only has indirect pressure. Last year bond investors pushed back hard against the Fed's easing because they correctly perceived that the economy and labor market were in better shape than feared by Fed officials. Orion’s AEs and our brokers hope that doesn’t happen again.