Rates Are Dropping—Even Without a Fed Cut
Interest rates improved again last week—even though the Fed didn’t cut rates. So, what’s driving the market? Let’s dig in and see what’s ahead.
“I’ve gotta take a little time, a little time to think things over…” – I Want to Know What Love Is by Foreigner
“We do not need to be in a hurry.” – Fed Chair Jerome Powell
The Fed held rates steady last Wednesday and made it clear—they’re in no rush to cut. Their message? The economy is holding up well, and they don’t want to move too fast and risk stoking inflation.
“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid.” – FOMC Statement 1/29/25
Just a few months ago, the Fed worried about rising unemployment. They even warned that further job losses would be a problem. Now? That concern is fading, which is good news for the economy, housing, and mortgage rates. After all, jobs buy homes.
The Fed Doesn’t Set Mortgage Rates—The Market Does
One of the biggest misconceptions is that when the Fed cuts rates, mortgage rates automatically drop. That’s not how it works.
Since September, the Fed has cut short-term rates by 1.00%, yet mortgage rates rose nearly the same amount. Why? Inflation fears. When inflation is a threat, long-term rates (like mortgages) go up. And for a while, the Fed’s rate cuts made the market nervous that they were easing too soon.
Now that the Fed is holding steady and keeping inflation in check, mortgage rates are responding positively.
Lower Oil Prices = Lower Inflation = Lower Rates
Another reason rates are improving? Oil prices just hit their lowest level of 2025. A few weeks ago, oil was at $80 per barrel. Now it’s hovering around $72.
Why does this matter? Because energy costs are a major driver of inflation. When oil prices drop, inflation tends to follow. And when inflation cools, mortgage rates do too.
Europe Just Cut Rates—And That Matters Here
Over in Europe, the European Central Bank (ECB) cut rates last week, signaling more cuts are on the way. Their economy is struggling, and inflation is coming down.
When major central banks lower rates, it puts downward pressure on global interest rates—including ours. Investors see this and start shifting money into U.S. bonds, which pushes mortgage rates lower.
Economic Growth Is Slowing—And That’s Rate-Friendly
The latest GDP report showed the economy grew just 2.3% in Q4, much weaker than the 2.7% expected and a slowdown from the 3.1% growth in Q3.
Why does this help rates? Because bonds (which mortgage rates follow) love bad economic news. Slower growth means less inflationary pressure, which increases the odds that the Fed will eventually have to cut rates.
Mortgage Rates: Still Trending Down
- 30-yr Fixed: 6.95% (down slightly from 6.96% last week)
- One Year Ago: 6.63%
- 10-yr Treasury: 4.50% (down from 4.80% in late 2024)
Each of the last two times mortgage rates hit these levels, they dropped significantly afterward. And with all the bond-friendly news lately, we’re seeing that trend again.
What’s Next? A Big Jobs Report
Next week is all about jobs. We’ll find out how many companies are hiring, how many people are quitting, and whether unemployment is still steady.
The Fed has made it clear: the job market is key to their rate decisions. If we see signs of weakness, the market may start pricing in rate cuts sooner. If hiring stays strong, expect the Fed to keep holding the line. Either way, mortgage rates will react.
Bottom line: The momentum is shifting in favor of lower rates. If you’re looking to make a move, stay ready.
Mortgage Market Guide Candlestick Chart
Mortgage bond prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 6.0% coupon, where currently closed loans are being packaged. As prices move higher, rates decline, and vice versa.
If you look at the right side of the chart, you can see how prices have moved nicely higher and at the best levels in over one month, meaning the best rates in over a month.
Chart: Fannie Mae 30-Year 6.0% Coupon (Friday, January 31, 2025)
Economic Calendar for the Week of February 3 – 7
