On September 17, the Federal Reserve announced its decision to cut the federal funds rate by 25 basis points — the first reduction since December 2024. For context, a basis point is one one-hundredth of a percentage point. While this move is aimed at managing inflation and supporting the economy, it could have a direct impact on mortgage rates and other financial products.
What’s Behind the Rate Cut?
Mortgage lenders had been anticipating this action, and rates have already begun to trend downward. Last week, the average 30-year mortgage rate dropped below 6.5% for the first time in 2025, reflecting the shift in monetary policy.
“Rates have been trending downward lately, and while we’re not seeing dramatic drops, the momentum is encouraging,” said Chris Lim, Chief Growth Officer at Re/Max Holdings, a leading global real estate network.
But why did the Fed cut rates now, especially when inflation is still rising?
The Inflation and Jobs Balancing Act
The timing of the Fed’s decision comes after the latest Consumer Price Index (CPI) report on September 11, which showed inflation rose by 2.9% year-over-year in August — the highest increase since January. Fed Cuts Rates 25 Basis Points; Mortgage Rates Fall to 2025. Typically, rising inflation would prompt the Fed to raise rates, but the current situation is more complicated due to weakening job market conditions.
The unemployment rate has been climbing steadily since June, reaching its highest point since 2021. The August jobs report (released on September 5) raised some red flags, with only 22,000 jobs added — far below the expected 75,000. Certain sectors, like federal government jobs and wholesale trade, saw notable declines.
The Fed is trying to strike a delicate balance between controlling inflation and addressing unemployment. Normally, high unemployment is associated with lower inflation, making it tricky for policymakers to manage both forces simultaneously. With both inflation and unemployment on the rise, the Fed’s job is getting tougher.Fed Cuts Rates 25 Basis Points; Mortgage Rates Fall to 2025 Low
What’s Next for Mortgage Rates?
So, how will this Fed rate cut affect mortgage rates moving forward?
According to Chris Lim, mortgage rates could continue to ease through the fall and winter, though not dramatically. “Inflation data and other economic signals will remain crucial, so I wouldn’t expect rates to plummet,” he said. However, a slow and steady decline is possible, which could be beneficial for homebuyers and those looking to refinance.
Analysts are currently predicting the Fed will continue to cut rates in its next two meetings — in October and December. Each cut is expected to be another 25 basis points, which could bring the federal funds rate down to around 3.50%-3.75% by the end of the year.
If these predictions hold, mortgage rates could drop by around 50 basis points by December, possibly bringing the average 30-year mortgage rate below 6%. The last time we saw mortgage rates below 6% was in September 2024, so this could be a welcome relief for potential homebuyers.
Take Action Now
If you’ve been holding off on purchasing a home or refinancing, the current economic conditions and rate movements may present a great opportunity to lock in a lower mortgage rate in the near future. While we’re not likely to see dramatic rate cuts, the steady decline anticipated for the rest of 2025 could still benefit buyers and homeowners alike.
Want to stay on top of the latest mortgage rate trends and Fed decisions? Keep checking Creditvana.com for timely updates on how Fed actions are shaping the housing market and your financial future.
