On The Market Rates Reverse: Why More Fed Cuts WON’T Get Us Below 6%
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Sep 25, 2025 Mortgage rates have surprisingly risen despite a recent Fed rate cut. The Fed mainly influences short-term rates, while long-term lending hinges on the 10-year Treasury and inflation risks. Predictions suggest mortgage rates will stabilize in the low to mid sixes through 2025, maintaining tight affordability. Interestingly, commercial real estate may benefit from these rate cuts due to shorter-term debts. Investors are advised to focus on current rates, inflation trends, and prepare for gradual gains rather than drastic market shifts.
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Fed Only Controls Short-Term Rates
- The federal funds rate controls short-term rates but not long-term lending like 10- or 30-year mortgages.
- Long-term rates are set by Treasuries plus risk spreads and can move opposite the Fed's cuts.
Why Mortgage Rates Stay Higher Than Fed Cuts
- Mortgage rates track the 10-year Treasury yield plus a mortgage spread driven by risk perception.
- Right now a ~4.2% 10-year plus a ~2.1% spread explains ~6.3% mortgage rates.
Inflation Risk Keeps Long-Term Rates Elevated
- Inflation risk drives both Treasury yields and the mortgage spread because investors fear long-term purchasing power loss.
- Growing inflation expectations make investors demand higher rates on long-duration loans.