Fed’s Latest Rate Cut (9/17/25)

**Sources (with links) used for this article are compiled at the bottom. These sources would also be good for further reading/research into the topic.

Last week, the Federal Reserve delivered some long-anticipated news... it cut its benchmark interest rate by a quarter of a percent. This is the Fed’s first rate reduction since last December, and it brings the target federal funds rate down to a range of about 4.0% to 4.25%. The move was widely expected by financial markets, but it’s still a notable shift after a prolonged period of holding rates high. So, the Fed is tapping the brakes on borrowing costs, and for mortgage professionals, there are a few considerations.

A “Risk Management” Cut, But Why Now?

Fed Chair Jerome Powell described this rate cut as a “risk management cut,” meaning it’s a precautionary tweak to support the economy amid some emerging soft spots. The economy isn’t crashing, but it has been cooling off in certain areas. Job growth has slowed in recent months, and the unemployment rate has ticked up slightly (though it’s still historically low). Meanwhile, inflation is still above the Fed’s 2% goal, and in fact had risen a bit over the summer. Rather than wait for any serious trouble, the Fed decided to trim rates now to cushion the economy against potential future weakness.

It’s like giving the economy a mild boost of caffeine to stay alert, without waiting for it to nod off completely.

Powell and the Federal Open Market Committee (FOMC) emphasized that uncertainty about the outlook is high. They see growing downside risks to employment. In other words, they’re a bit more worried about the job market losing steam than they were before. By cutting rates a notch, the Fed is aiming to support the job market and broader growth, while still keeping an eye on inflation. Importantly, officials signaled that this isn’t the start of a free-fall in rates. Any further rate moves will depend on how the economy and inflation evolve in the coming months.

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Mortgage Rates Are Easing (Slightly)

If you’re an MLO, you may have already noticed some good news on mortgage rates. Even before the Fed’s announcement, mortgage rates had been inching down in anticipation of a possible cut. Now that the cut is official, we haven’t seen a dramatic plunge in mortgage rates, but the trend is definitely downward. The average 30-year fixed mortgage is now hovering in the low-to-mid 6% range, roughly 6.3% to 6.4%, which is a bit lower than a month ago. In fact, this is about the lowest level for mortgage rates in almost a year.

Why aren’t mortgage rates dropping more sharply? The main reason is that markets saw this Fed move coming. Investors had largely “priced in” the quarter-point cut, so long-term bond yields (which heavily influence fixed mortgage rates) barely budged on the news. Remember, the Fed’s rate decisions don’t directly set mortgage rates. Instead, mortgage rates follow the 10-year Treasury and other market factors. Those were already factoring in an economic slowdown and the likelihood of Fed easing. As Rocket Mortgage’s finance chief noted in one report, there was little surprise here, so mortgage rates stayed relatively flat immediately after the announcement. The big takeaway is that we’ve likely hit the peak for mortgage rates and are now gently gliding lower, rather than continuing the steep climb we saw previously.

Impact on the Housing Market

Lower interest rates are generally positive for the housing sector, though the effects might be gradual. For instance, home builders could get some relief. Many builders rely on acquisition, development, and construction loans, which now may come with slightly lower interest costs. Cheaper financing for builders can help boost home construction over time, potentially easing some housing supply constraints. Given that tight inventory has been a major headwind for the market, anything that enables more building is welcome news.

That said, Powell himself cautioned that housing is still facing challenges beyond just high rates. Issues like regulatory costs, labor shortages, and the sheer lack of available homes can’t be fixed overnight by a rate cut. In other words, this Fed cut is not a magic wand that will suddenly make homes affordable or inventory plentiful. But it does offer a bit of relief on the financing side of the equation. At the very least, lower rates should stop things from getting worse on the affordability front, and maybe even improve buyer sentiment slightly as mortgages become a tad cheaper.

What It Means for MLOs and Borrowers

For MLOs, the Fed’s rate cut is a green light to re-engage some clients who were discouraged by higher rates. With rates dipping from their peaks, you might see renewed interest in refinancing. Homeowners who bought or refi’d when rates were above 7% might now have an opportunity to save money by refinancing at current rates in the mid-6s or potentially lower in the near future. It’s a good time to reach out to past clients who were on the fence. Let them know that rates have improved a bit, and it could be worth reviewing their options again.

Home purchase activity could also get a small boost. Every decrease in mortgage rates improves affordability slightly, which might bring some buyers back into the market. Clients who were stretching their debt-to-income ratios may find a little more breathing room with these lower rates. First-time buyers, in particular, pay close attention to monthly payment differences, so a 0.25% drop in rates can make a meaningful difference over a 30-year loan. As an MLO, you can frame this development positively. It’s evidence that the rate environment is improving, and that buyers who have been waiting might want to start exploring their options again.

Of course, it’s also important to set proper expectations. We’re not suddenly returning to 3% mortgage rates. The Fed’s move is helpful, but it’s a small step. Mortgage rates are still relatively high compared to a few years ago, and many borrowers will continue to feel the affordability pinch. Emphasize to clients that while rates are trending down, it’s a gradual change, not a collapse. This way, they can make informed decisions without unrealistic hopes. The silver lining is that the trend is finally in a favorable direction for borrowers, something we haven’t been able to say for quite a while.

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Looking Ahead With Cautious Optimism

The Fed’s latest projections and comments hint that this may not be the last cut. In fact, central bank officials signaled they might do a couple more quarter-point reductions over the next year if conditions warrant. Some analysts even predict another cut as soon as the Fed’s next meeting. The Fed itself is being non-committal (they will “carefully assess incoming data” before any further moves), but the door is certainly open for further easing if the economy continues to slow. Inflation is still above target, but if it keeps inching down and the job market gets weaker, the Fed will feel more comfortable cutting rates a bit more.

What does that mean for you and your borrowers? Potentially, more rate relief on the horizon. If we get another one or two Fed cuts in the coming months, we could see mortgage rates slip closer to the 5% range sometime in 2026. In fact, some projections suggest the average 30-year fixed could dip below 6% by early next year if the trend holds. That would be a psychological win for many buyers and refinancers. Keep an eye on the economic indicators. Reports on inflation, employment, and economic growth will heavily influence the Fed’s decisions. We’ll be in a data-dependent environment, meaning each new report has the power to sway rate expectations.

TLDR...

The Fed’s rate cut is welcome news for the mortgage world. It’s a sign that the tide is turning after a long stretch of rising rates. For mortgage loan originators, it offers a chance to reconnect with clients and share a bit of positive news... borrowing costs are finally edging down. The change is gradual, but momentum matters.