Fed Cuts Rates for the First Time in 2025. What Does It Mean for Mortgage Rates?

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For the first time since December 19, 2024, the Fed has decided on a rate cut. And as predicted by the CME Group & Polymarket, Committee members chose a 25 basis point cut.

Don’t expect a steep drop in interest rates on the heels of this announcement, though. This cut, though long in coming, was widely expected for September, mainly due to weakening in the labor market.

It probably didn’t hurt, either, that President Trump’s newest appointee, Stephen Miran, was sworn in with immediate voting power on Tuesday and participated in the Committee vote. Miran, an economist and investment strategist, replaces Fed governor Adrianna Kugler, who resigned in August.

Powell’s prepared remarks at the press conference mentioned housing only briefly, noting that “activity in the housing sector remains weak.” And the word “uncertainty” came up more than once in his responses to reporters.

But he did point out that the median participant projected the federal funds rate at 3.6% by the end of 2025. And 11 of 19 FOMC Committee members penciled in two more cuts for this year.

What This Means for Mortgage Rates

While the Fed doesn’t directly set mortgage rates, its policy changes ripple through the bond market.

Ahead of yesterday’s cut, mortgage rates already dipped, hitting a new 2025 low of 6.13% on September 16. Yesterday, rates increased to 6.22%, which is still a welcome number compared to 6.59% last month, and closer to 7% earlier in the year.

Data from the Mortgage Bankers Association shows that homeowners and buyers have responded quickly to lower rates. For the week ending September 12, refinance applications increased 70% compared to the previous year, and purchase applications were up 20% YoY.

MBA Chief Economist Mike Fratantoni stated:

“Mortgage rates, along with longer-term Treasuries moving in advance of this dovish shift in monetary policy, reached their lowest point for the year last week, spurring a strong jump in refinance activity. If mortgage rates hold at these levels, origination activity will be boosted, both for homeowners who purchased in the last three years and can realize considerable savings at these rates, and for potential homebuyers, who now have one more reason to look for a home, in addition to increasing housing supply in many markets.”

In short, mortgage rates likely won’t plummet on this single cut, but they are already lower than they were a month ago. For both buyers and homeowners looking to refinance, the coming weeks could present a window of opportunity, especially if rates flirt with the high-5% range.

Housing Mentions During the FOMC Press Conference

During his opening remarks, Powell mentioned housing just once, stating:

“Activity in the housing sector remains weak.”

As for the Q&A segment of the FOMC press conference, one question centered around housing:

Question from Nicole Goodkind, Barrons (44:53):

“Given the cumulative impact of high interest rates on the housing sector, I’m wondering how concerned you are that current rate levels are exacerbating housing affordability issues and potentially hindering household formation and wealth accumulation for a segment of the population.

Powell’s response (45:16): 

“Housing is an interest-sensitive activity, so it’s at the very center of monetary policy. When the pandemic hit, and we cut rates to zero, the housing companies were incredibly grateful, and they said the only thing that kept them going was that we cut so aggressively and provided credit and things like that. And they were able to finance because we did that. The other side of that is when inflation gets high and we raise rates. And you’re right, it does burden the housing industry. 

“So, rates have come down a bit, and as that happens, we don’t set mortgage rates, but our policies do tend to impact mortgage rates. And that has been happening. And that will, of course, raise demand. Lower borrowing rates for builders will help get builders’ supply. And so, some of that should happen. I think most analysts think it would have to be pretty big changes in rates for it to matter a lot for the housing sector. 

“And the other thing is by achieving maximum employment and price stability, that’s a strong economy, that’s a good economy for housing. 

“And then the last thing I’ll say is there’s a deeper problem here. There’s not a cyclical problem the Fed can address; pretty much a nationwide housing shortage. A lot of places in the country just don’t have enough housing for people. And all of the areas around metropolitan areas like Washington, for example, are very built up, and so you’re having to build farther and farther out. So, that’s where it is.”

Here, Powell drew a line between what the Fed can and cannot do. A small cut might give short-term relief, but affordability challenges are rooted in housing supply shortages.

Follow-up question by Goodkind (47:00): 

“During the last press conference following the SEP (Summary of Economic Projections), you seemed to indicate that policy makers lack conviction about their projections, and I’m wondering if you still feel that way.”

Powell’s response (47:13):

“Forecasting is very difficult even in placid times. As I’ve mentioned before, forecasters are a humble lot with much to be humble about. I think right now is a particularly challenging time, even more uncertain than usual. And so, I don’t know any forecaster anywhere, really… Ask any of the forecasters whether they have great confidence in their forecast. I think they’ll honestly say no.”

This acknowledgment underscores how fragile projections are in today’s environment. It’s a reminder that rate paths will remain data-dependent, and housing markets will need to adapt to that uncertainty.

Vanessa Bowman | Sep 18, 2025 | Housing Market

https://nowbam.com/fed-cuts-rates-for-the-first-time-in-2025-what-does-it-mean-for-mortgage-rates/

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