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After listening to Fed Chair Jerome Powell’s press conference, the explanation became clear: The Fed may be easing, but it remains cautious.
Powell acknowledged cooling inflation and a moderating economy, but he repeatedly stressed that progress isn’t yet “secure.” That caution is exactly what keeps long-term borrowing costs, including mortgage rates, from making any meaningful move downward.
With Powell’s cautious signals in mind, let’s explore how his remarks directly shape mortgage rates and the broader housing market.
1. Mortgage Rates Don’t Follow the Fed Funds Rate, They Follow Long-Term Bonds
Powell reminded everyone that the Fed does not set mortgage rates directly. The Fed controls short-term overnight lending, known as the federal funds rate, which is the interest rate banks charge each other for overnight loans.
Mortgage rates, however, mirror the 10-year Treasury yield (the interest rate on 10-year U.S. government bonds), which reacts to long-term expectations about inflation, not whatever the Fed announced this afternoon.
So when Powell says things like:
- “Inflation has eased, but it is still above our target.”
- “We need more confidence that inflation is on a sustainable path.”
Bond investors hear something completely different than “rate cut”:
Inflation risks remain. We’re not done yet.
That’s why Treasury yields barely budged and why mortgage rates didn’t fall.
2. Powell Explicitly Called Out Housing Inflation
One of the clearest signals from today’s press conference:
“Housing services inflation remains elevated, though we expect gradual improvement.”
This matters because shelter costs account for a large share of inflation calculations.
When the Fed sees housing inflation as “too hot,” the market interprets it as:
The Fed is still worried. Stay cautious. Demand higher yields.
Higher Treasury yields → higher mortgage rates.
Even with a rate cut, Powell’s tone essentially told markets:
Don’t expect cheaper mortgages any time soon.
3. The Economy Is Cooling but Not Enough for Aggressive Cuts
Powell acknowledged what many analysts already see:
- Hiring has slowed
- Wage growth is easing.
- Consumers are becoming more cautious.
But he also inserted a warning:
“We are not declaring victory.”
Translation:
The Fed sees progress, but not enough progress to fully shift into “easy money” mode.
When the Fed signals lingering inflation risk, long-term rates stay sticky, and mortgage rates remain elevated.
4. Investors Don’t Believe the Fed Will Cut Much More
Even though the Fed delivered a cut today, Powell offered zero promises about future moves:
“The path of policy will depend on incoming data.”
Markets hate uncertainty.
And this sentence is nothing but uncertainty.
Investors now assume:
- The Fed might slow down future cuts.
- Cuts might pause
- Cuts might even reverse if inflation re-flares
With no firm path, bond markets held their ground and mortgage rates stayed right where they were.
5. Mortgage Spreads Are Still Historically Wide
Powell indirectly acknowledged tighter financial conditions, and that pressure is visible in the mortgage-backed securities market.
Typically, the spread between the 10-year Treasury and a 30-year mortgage is around 1.7%–1.9%.
Today, it’s more like 2.5%+.
Why so wide?
- The Fed is no longer a major MBS buyer.
- Banks are offloading risk, not adding it.
- Investors fear refinancing losses if rates fall later.
A wider spread keeps mortgage rates elevated even if Treasury yields fall or the Fed cuts more.
What This Means for Today’s Homebuyers
Powell’s message was subtle but unmistakable:
Yes, the Fed cut rates. No, mortgage rates are not about to plunge.
Here’s what buyers should expect next:
1. Mortgage rates may ease but slowly.
A dramatic drop into the mid-5% range is unlikely until inflation cools further.
2. Inflation reports, not Fed meetings, will drive the next big move.
Each CPI release will matter more than any Fed press conference.
3. Lower rates will bring more buyers back into the market.
Once rates move closer to the high-5s, competition will intensify, especially in tight markets like Greater Phoenix and Scottsdale.
4. Waiting for a “miracle rate drop” is still a gamble.
Powell did not indicate that rapid rate declines are on the horizon.
Bottom Line
The Fed may be cutting, but Powell’s cautious tone kept long-term yields and therefore mortgage rates firmly above 6%.
For mortgage rates to truly move lower, the market needs:
- Several months of consistent inflation improvement
- Clearer Fed confidence that inflation is defeated
- A tightening of the unusually wide mortgage-bond spread
Until those pieces fall into place, today’s rate cut is more symbolic than transformative.
