Mortgage rates could slip even before the Federal Reserve formally cuts rates on Sept. 17 because lenders tend to price in expectations ahead of policy moves and mortgages key off the 10-year Treasury yield more than the Fed's short-term rate.

Markets Price In September Cut Ahead Of Jerome Powell

According to the CME Group’s FedWatch tool, markets now overwhelmingly expect the first rate reduction of 2025 at the two-day meeting that ends Sept. 17. Futures pricing implies odds in the mid-90s for a cut, reinforcing the view that banks and nonbank lenders may begin shading offers lower before Chair Jerome Powell takes the podium.

Mortgage Rates Track Treasurys, Not Fed Target

For borrowers, the Fed steers overnight money, but fixed mortgage rates track the 10-year Treasury and investors' appetite for mortgage-backed securities, according to a report by Kiplinger. When bond yields ease on cooling inflation or rising recession odds, mortgage quotes usually follow -- sometimes days or weeks before an official Fed move.

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Recent history backs that up. In September 2024, the Fed surprised with a 50-basis-point cut and average mortgage rates had already plunged to two-year lows ahead of the announcement.

Recent Declines, Yields And A Buyer Playbook

The 2025 trend has already turned. Freddie Mac's survey shows the 30-year average fell from a 7.04% print in mid-January to 6.56% by Aug. 28, which is a 10-month low that nudged more buyers and refi candidates off the sidelines.

What could push rates lower sooner is a break in the 10-year yield or a narrower mortgage-Treasury "spread" as volatility cools and risk premiums fade. Conversely, any jump in yields can erase gains fast.

For consumers, the practical playbook suggests that if you can afford the payment on a home you want, consider moving now and refinancing it later if rates go down. As per a Wall Street Journal report, Refi activity is already thawing as quotes drift lower, suggesting lenders will be ready to compete if Treasurys cooperate, whether the cut lands or not.

Photo: Andrew Angelov/ Shutterstock

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