The Fed will wrap up its two-day meeting tomorrow, culminating in another rate decision that is overwhelmingly expected to result in zero change.
In other words, no rate hike and no rate cut. Just staying the course.
At last glance, the odds of the Fed standing pat was 97.2%, per the probabilities tracked by CME FedWatch.
So if the Fed “does nothing” tomorrow, what will mortgage rates do?
Will they do something? Or nothing as well? The answer depends on many things.
The Fed Can Impact Mortgage Rates Despite Not Controlling Them
First a little recent history…
In both 2024 and 2025, the Fed “decided to maintain the target range for the federal funds rate” for the first nine months of the year.
It wasn’t until September of both years that they made a cut, though both initial cuts were followed by two additional cuts to close out each year.
So we got six cuts over the past two years, including one 50-basis point cut and five 25-basis point cuts.
That has erased some of the 525 bps in rate hikes seen from early 2022 through mid-2023.
But to date, the Fed has only rolled back the federal funds rate by 175 bps. In other words, we remain in restrictive territory, at least relative to a few years ago.
Anyway, along the way, we’ve seen mortgage rates go up, down, and sideways, despite the Fed doing nothing most of the time.
After all, they meet eight times per year, so out of the past 16 meetings, they only cut six times and did nothing the other 10 times.
Of course, “nothing” might be a stretch because they still release dot plots every other meeting and weigh in on where they think we’re headed.
Aside From the Fed Decision, We Also Get Powell
We also get a press conference from Fed chair Jerome Powell, which is always highly anticipated and watched that spells out where the economy might be headed.
That’s basically where you’ll get any action on mortgage rates tomorrow, though the way Powell operates, it’s typically not much of a mover.
As I’ve said time and time again, the Fed doesn’t control mortgage rates. It simply sets short-term overnight lending rates that provide liquidity to banks, known as the federal funds rate.
Without getting too stuck in the weeds, they control short rates and the popular 30-year fixed is most definitely a long rate.
Three decades long in fact.
So while the Fed’s short-term rate expectations can play a role in the direction of long-term rates, it’s just one small piece of the pie.
And crucially, the Fed (and Powell) is acting upon economic data that is already known to the public.
They don’t dictate rates, the data does. They simply set their own policy rate once the data is known. And as stated, only short rates.
What Will Happen to Mortgage Rates on Fed Do Nothing Day?
Okay, great. So what will mortgage rates do on a Fed staying put day?
Well, that’s kind of where I was going with all this. The Fed doesn’t set or control mortgage rates to begin with.
So even if they were hiking or cutting, it might not have any effect tomorrow. Or the effect you expected.
And if absolutely nothing is expected, chances are even less will happen with mortgage rates.
But that’s not necessarily because of the Fed. It’s because there’s nothing else happening tomorrow in terms of data reports.
In addition, as I said earlier, Powell isn’t in the business of dropping bangers during the press conference.
So it’ll probably be pretty boring and that means another blah sideways day for mortgage rates.
To add to that, we have the monthly jobs report next Friday, which carries the most weight of anything on the calendar.
That means MBS investors will be paying far more attention to that than tomorrow’s Fed decision and subsequent presser.
The only caveat is if something unexpected happens tomorrow, but that wouldn’t have anything to do with the Fed.
(photo: k)
