The Fed’s Next Move Is Coming Soon. Here’s What to Expect for Mortgage Rates.

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What Markets Currently Predict From the Fed in 2025

At both its January and March meetings (there was no February meeting), the Federal Reserve announced it was maintaining the federal funds rate at its current level. That paused a three-meeting run of rate cuts between September and December 2024, which had lowered the benchmark rate by a full percentage point. Previously, the Fed had held its key rate at a historic 23-year high for 14 months.

Now, another Fed meeting is coming, with the central bank’s rate-setting committee scheduled to announce its next decision on May 7. Though anything can happen in the next two weeks, CME Group’s FedWatch Tool shows it’s overwhelmingly predicted right now that the Fed will hold its benchmark rate steady.

But there are five more Fed rate-setting meetings scheduled in 2025 after the May gathering, and according to year-end probabilities reported by the CME Group, traders are currently pricing in an almost 75% probability that cuts totaling at least 0.75 points will be announced by December 2025. Most likely, that would occur as three 0.25-point cuts, but the Fed could also choose to make a larger reduction at any meeting.

As for when the Fed’s predicted rate reductions will arrive, markets are betting we’ll be waiting at least a couple more months before the first cut of 2025. It’s not until the Fed’s June 17–18 meeting that the majority odds favor a quarter-point rate decrease.

Will a Lower Fed Rate Mean Lower Mortgage Rates?

It’s a common belief that when the Federal Reserve raises the federal funds rate, as it did aggressively during 2022 and 2023, mortgage rates will climb. Conversely, the logic goes, when the Fed lowers the federal funds rate, it’s expected that mortgage rates will fall. So, if the Fed reduces its benchmark rate later this year, can we expect mortgage rates to drop?

Unfortunately, the relationship between the federal funds rate and what mortgage lenders offer is not quite so clear. Instead, moves by the central bank more directly impact short-term rates, such as those paid on bank accounts as well as those charged on credit card and personal loan balances.

Since fixed mortgages offer the stability of a long-term rate, their connection to Fed rate changes is more tenuous. Beyond the federal funds rate, a tangle of economic factors affects the mortgage lending market. These include inflation, consumer demand, housing supply, the strength of the current economy, and the status of the bond market, especially that of 10-year Treasury yields. Given these other influences, mortgage rates and the Fed funds rate can move independently—even in opposite directions.

That’s exactly what we saw in the last quarter of 2024, when mortgage rates shot up despite a bold half-point rate cut in September. Not only that, but after two more Fed reductions, 30-year mortgage rates surged again in late December and January, reaching almost 1.25 percentage points higher than before the Fed’s first rate cut.

Fallout from President Trump’s tariff policy put into effect on April 2 has also pushed mortgage rates around. Initially, the stock market dropped, sending bond yields lower. This caused a quick mortgage rate decline. But the massive uncertainty surrounding tariffs, and the trade wars they’ve ignited, later sent bond yields much higher, causing mortgage rates to surge.

Since then, the 30-year mortgage rate average has again fallen and again climbed for an April roller coaster fueled by market uncertainties waiting to be resolved. So while the Fed is most likely to signal in May that it remains in “wait and see” mode, other swirling economic factors clearly have the power to dramatically impact mortgage rates even when the Fed is doing nothing to its benchmark rate.

One especially important factor for bond yields—and therefore mortgage rates—is the future outlook for the Fed’s benchmark rate. In other words, what’s expected to happen with the Fed rate is often more impactful to mortgage rates than where the federal funds rate sits right now.

True, financial markets have assigned a majority probability that we’ll see at least three rate cuts this year. But in today’s economic and political environment—and the uncertainty over which tariffs will stick, which will be softened, which will turn into all-out trade wars—nothing can be truly counted on right now. Inflation, for instance, could rise substantially, which in turn could scare the Fed off any rate cuts in the near term.

For now, the Fed’s expected rate hold in two weeks will likely do little, if anything, to the direction of mortgage rates. More impactful will be the status of tariff policy and the next round of inflation readings. Also useful will be the Federal Reserve’s next official statement on where it expects its benchmark rate will be by the end of the year (its “dot plot” forecast). But since it releases that projection only quarterly, we’ll be left waiting until the June 17–18 meeting to see behind that curtain.

How We Track the Best Mortgage Rates

The national and state averages cited above are provided as is via the Zillow Mortgage API, assuming a loan-to-value (LTV) ratio of 80% (i.e., a down payment of at least 20%) and an applicant credit score in the 680–739 range. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may vary from advertised teaser rates. © Zillow, Inc., 2025. Use is subject to the Zillow Terms of Use.