Will a Fed Rate Cut Lower Mortgage Rates?

The Federal Reserve meets this week, and expectations are high that they’ll cut the Federal Funds Rate. But does that mean mortgage rates will drop? Let’s clear up the confusion and talk about what this could mean for homebuyers here in Bellingham and Whatcom County.

The Fed Doesn’t Directly Set Mortgage Rates

Most economists expect the Fed will cut the Federal Funds Rate at their mid-September meeting to try to head off a potential recession. According to the CME FedWatch Tool, markets are already betting on it with virtually a 100% chance of a September cut. Based on current data, there’s about a 92% chance it’ll be a small cut of 25 basis points and an 8% chance it could be a larger 50-basis-point cut.

So, what exactly is the Federal Funds Rate? It’s the short-term interest rate banks charge each other. It impacts borrowing costs across the economy, but it’s not the same as mortgage rates. Still, the Fed’s actions can influence the direction mortgage rates take next.

Why Markets Already Saw This Cut Coming

Mortgage rates usually respond to what financial markets expect the Fed will do before the Fed officially acts. When markets anticipate a Fed cut, that outlook gets priced into mortgage rates ahead of time.

That’s what happened after weaker-than-expected jobs reports on August 1 and September 5. Each time, mortgage rates ticked down as markets grew more confident a cut was coming soon. Even though inflation rose slightly in the latest CPI report, the Fed is still expected to cut rates.

If the Fed makes a 25-basis-point cut as expected, that’s likely already priced in, so mortgage rates may not move much. But if they go with a 50-basis-point cut, rates could fall further.

Where Mortgage Rates Could Go Next

While this cut may not bring dramatic changes, many experts expect the Fed could make multiple cuts before the end of the year if the economy continues to cool.

“For mortgage rates, investor confidence in a forthcoming rate-cutting cycle could help push borrowing costs lower in the back half of 2025, offering some relief to housing affordability and potentially helping to boost buyer demand and overall market activity.” – Sam Williamson, Senior Economist at First American

If multiple cuts occur, or even if markets believe they will, mortgage rates could ease further in the months ahead. But all of this depends on how the economy evolves. Surprise inflation spikes or unexpected shifts could change the outlook quickly.

What This Means for Buyers in Bellingham and Whatcom County

For buyers in Bellingham, Ferndale, Lynden, and throughout Whatcom County, even a small shift in mortgage rates can make a real difference in affordability. Lower monthly payments could open the door to homes that may have felt out of reach earlier this year.

Whether you’re a first-time buyer eyeing a starter home in Bellingham’s Roosevelt neighborhood or you’re considering upgrading in Ferndale or Blaine, keeping an eye on mortgage rate trends helps you make smarter moves in today’s market.

Bottom Line

Mortgage rates won’t fall in lockstep with the Fed’s moves, and you probably won’t see a sharp drop overnight. But if the Fed begins a rate-cutting cycle, and markets maintain confidence in it, mortgage rates could trend lower later this year and into 2026.

If you’ve been waiting and watching the housing market in Whatcom County, now is the time to talk strategy. Even a small change in rates can make a meaningful difference in affordability, and having a plan in place will help you move when the timing is right.