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Financial markets

Interest Rate Cut May Not Immediately Impact Mortgage Rates, Says Expert

Strategic Insights

— 1 min read

The Federal Reserve's decision to cut the key interest rate by a quarter-point to 4.1% on Wednesday may not have a significant immediate impact on mortgage rates, according to Northeastern economist Bob Triest. While this move is a step in the right direction, Triest notes that mortgage rates will not likely come down immediately due to the complex interplay of factors influencing the economy, including inflation, tariffs, and the path of fiscal deficits. The anticipation of future cuts, however, may result in mortgage interest rates dropping as the bond market responds.

Key Takeaways:

  • The Federal Reserve's key interest rate cut may not have a significant immediate impact on mortgage rates.
  • The rate cut is a step in the right direction, but its effects on mortgage rates will be influenced by various factors, including inflation, tariffs, and the path of fiscal deficits.
  • Mortgage rates are not directly tied to the Federal Funds Rate, which is the rate that banks use to lend each other money overnight.
  • The anticipation of future interest rate cuts may lead to a drop in mortgage interest rates as the bond market responds.
  • The passage of The Big Beautiful Bill Act is expected to result in increased public debt relative to Gross Domestic Product, potentially pushing up the cost of government borrowing and interest rates.
  • Northeastern economist Bob Triest expects mortgage rates to drop measurably before the end of 2025, but cannot predict by how much.

Statistics:

  • The Federal Funds Rate was cut from 4.3% to 4.1%.
  • The potential inflationary pressures of tariffs and the path of fiscal deficits may push up longer-term interest rates, such as the 30-year mortgage rate.
  • The Big Beautiful Bill Act is expected to result in projections of increased public debt relative to Gross Domestic Product.
  • 2025 is expected to be the time frame within which mortgage rates will drop measurably.

Sources:

  • Northeastern University press release.
  • Federal Reserve decision to cut interest rate.

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