Many Americans hoping for relief in the housing market are still waiting.
Despite a series of Federal Reserve interest-rate cuts in 2024 and 2025, mortgage rates remain elevated, frustrating homebuyers, homeowners looking to refinance, and anyone hoping for a more affordable path into the housing market.
According to data released by Freddie Mac on June 4, the average rate on a 30-year fixed mortgage stood at 6.48 percent. While that is slightly below some recent peaks, it remains well above the levels many buyers became accustomed to during the pandemic years.
The persistence of higher mortgage rates has become a political issue as well, with President Donald Trump continuing to pressure the Federal Reserve for deeper rate cuts.
But according to an analysis published by The Conversation, the Federal Reserve has far less control over mortgage rates than many people assume.
The article, written by finance professor Jay L. Zagorsky of Boston University, argues that mortgage rates are largely determined by financial markets rather than direct action by the central bank.
“Not that much,” Zagorsky writes when discussing how much influence the Fed has over mortgage rates.
While the Fed sets the federal funds rate – the short-term rate banks charge each other for overnight lending – mortgage lenders and investors are making decisions based on expectations about inflation, government borrowing, economic growth and future interest rates.
One major concern remains inflation.
Although inflation has fallen significantly from the highs seen in 2022 and 2023, investors remain uncertain about how quickly it will return to the Federal Reserve’s long-term target of 2 percent.
Government borrowing is another factor influencing mortgage costs.
The Congressional Budget Office has projected continued large federal deficits in coming years. According to the analysis, investors often demand higher returns when the Treasury issues larger quantities of government debt, and those higher yields can push mortgage rates upward.
The article also points to risks associated with mortgage-backed securities, the financial instruments that package home loans and sell them to investors. Because homeowners can refinance or pay off mortgages early, investors generally demand additional compensation for that uncertainty.
As a result, mortgage rates do not necessarily move in tandem with Federal Reserve policy.
There is also an important historical perspective.
Many Americans compare today’s mortgage rates with the exceptionally low rates available during 2020 and 2021, when some borrowers secured loans below 3 percent. But those rates were among the lowest ever recorded in the United States and were largely the result of extraordinary emergency measures taken during the pandemic-era economic slowdown.
By comparison, mortgage rates commonly ranged between 6 percent and 8 percent during much of the 1990s and early 2000s.
Viewed through that lens, today’s mortgage market may be less unusual than it appears.
The article suggests that until investors become more confident about inflation, government debt levels and the broader economic outlook, mortgage rates could remain elevated even if the Federal Reserve continues to lower short-term interest rates.
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