The Fed Moved. Now What?

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For some of Orion’s broker clients this year, Christmas came early when the Federal Reserve lowered its overnight federal funds rate. This is the annual rate that banks loan money overnight to each other. Depending on how you look at it, your client either received underwear or a new car for Christmas. So how might a lower federal funds rate, or any change in Fed policy, impact your borrowers? While economists often focus on how rate changes affect financial markets, there is far less discussion around what these moves mean for everyday consumers.

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How Federal Reserve Rate Cuts Impact Mortgage Rates

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Let’s start with mortgages. Orion brokers understand that changes to overnight interest rates do not have a large, direct impact on long term mortgage rates. Borrowers have various loan options, including fixed-rate and adjustable-rate mortgages, each with different features. However, there are indirect effects as banks look for ways to pass lower borrowing costs on to consumers. Mortgage rates fluctuate daily, and sometimes throughout the day, but most interest rates are still in the 6 percent range. The payment amount for a mortgage can depend on the loan term and whether the borrower chooses a fixed-rate mortgage or an adjustable-rate mortgage.

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When the Federal Reserve cut interest rates last week, as expected, some borrowers hoped mortgage rates would immediately follow. Contrary to popular belief, mortgage rates tend to track movements in the long term 10 year Treasury yield rather than the federal funds rate. The central bank’s third rate cut of 2025 lowered the target range to 3.5 to 3.75 percent, driven largely by a weakening jobs market. Different interest rates are available depending on the type of mortgage and borrower qualifications, and payment varies for adjustable-rate mortgages over time.

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According to Mortgage News Daily, the national average 30 year fixed mortgage rate fell to 6.3 percent on Wednesday following the Fed’s announcement, down slightly from 6.35 percent the day before. The annual percentage rate (APR) is an important metric for comparing the total cost of different mortgage options, as it includes interest and fees. However, brokers know that current mortgage rates remain higher than late October levels, even after multiple Federal Reserve rate cuts.

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Other Consumer Loans Affected by Fed Rate Changes

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Borrowers evaluating student loans may see lower payments on new loans, though existing student loans are not affected. Rates for auto loans are already trending downward in response to the Fed’s expected move, as well as rates for some small business loans. Interest rates for savings accounts may also decrease following a Fed rate cut. Unlike a 30 year mortgage, auto loans typically span only a few years and are more sensitive to short term interest rate changes.

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In general, Federal Reserve rate cuts tend to impact credit cards, auto loans, savings accounts, home equity lines of credit, and adjustable rate mortgages more directly than fixed rate home loans. Monthly payments for these loans can change as interest rates fluctuate.

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Economic Factors Beyond the Federal Reserve

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For broader context, additional economic forces continue to influence interest rates. Trade policy and tariffs are forecasted to slow economic growth and keep inflation elevated, according to analysis from the Tax Foundation. These tariffs are expected to increase household costs by an average of $1,100 in 2025 and $1,400 in 2026. Other factors, such as changes in consumer confidence and regulatory policies, also play a role in shaping economic conditions.

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Mortgage rates ultimately respond to a combination of economic conditions including employment trends, inflation, geopolitical events, lender capacity, and borrower demand. Shifts in the housing market, including supply and demand dynamics, can further influence mortgage rates. These factors are not directly controlled by the Federal Reserve, which means mortgage rates could remain at current levels for an extended period.

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