The Federal Reserve doesn’t set mortgage rates outright, but its decisions play a role in how rates move. After 11 rate hikes since early 2022, the Fed announced a pause at its latest meeting on Nov. 1.

However, as has happened in the recent past, mortgage rates could still climb even if the Fed keeps its key rate unchanged. 

“The Federal Reserve held off on another interest rate hike but is keeping their options open to raise rates at an upcoming meeting should conditions warrant. The rise in long-term interest rates in recent months has had the same desired effect of monetary tightening, effectively doing some of the Fed’s dirty work for them,” says Greg McBride, Bankrate’s Chief Financial Analyst.

The Fed meets again Dec. 12 – 13, at which time they could decide to make a rate adjustment.

What the Federal Reserve does

The U.S. Federal Reserve sets borrowing costs for shorter-term loans by changing its federal funds rate. This rate dictates how much banks pay each other in interest to borrow funds from their reserves, kept at the Fed on an overnight basis.

Since 2022, the Fed has been increasing this key interest rate to help calm inflation — hikes that have made it more costly for Americans to borrow money or take out credit.

Fixed-rate mortgages — the most popular type of home loan — don’t mirror the federal funds rate, however; they track the 10-year Treasury yield (more on that below). The fed funds rate does affect short-term loans, such as credit card rates and the rates on adjustable-rate mortgages.

The Fed also buys and sells debt securities in the financial marketplace. This helps support the flow of credit, which tends to have an overarching impact on mortgage rates.

Factors that influence mortgage rates

Fixed-rate mortgages are tied to the 10-year Treasury yield. When that goes up or down, fixed-rate mortgages follow suit.

The fixed mortgage rate isn’t exactly the same as the 10-year yield, however; there’s a gap between the two.


Typically, the gap between the 10-year Treasury yield and the 30-year fixed mortgage rate spans 1.5 to 2 percentage points. For much of 2023, that margin has grown to 3 percentage points, making mortgages more expensive.

Mortgage rates also move because of:

  • Inflation: Generally, when inflation picks up, so do fixed mortgage rates.
  • Supply and demand: When mortgage lenders have too much business, they raise rates to decrease demand. When business is light, they tend to cut rates to attract more customers.
  • The secondary mortgage market, where investors buy mortgage-backed securities: Most lenders bundle the mortgages they underwrite and sell them in the secondary marketplace to investors. When investor demand is high, mortgage rates trend a little lower. When investors aren’t buying, rates might rise to attract buyers.

What to consider if you’re getting a mortgage

Regardless of current Federal Reserve policy, your best bets for the lowest possible mortgage rate are to maintain solid credit, keep your debt low, make as much of a down payment as you can and shop around for loan offers.

When comparing rates, take a look at the APR, not just the interest rate — some lenders might advertise low interest rates, but offset them with high fees. You’ll know your true all-in cost, including these fees, by understanding the APR.

Bottom line on how the Fed affects mortgage rates

The Federal Reserve doesn’t determine fixed mortgage rates, but its policy decisions weave into the broader economic picture that informs your borrowing costs. When setting fixed rates, mortgage lenders take the Fed’s moves into account, as well as factors like the 10-year Treasury yield, inflation and investor appetite.

Additional reporting by Andrew Dehan