Fed Didn’t Raise Rates After All — Will Mortgage Rates Fall?

Mortgage rates could drop a little over the next few days, as central bankers at the Federal Reserve ultimately decided to hold overnight borrowing rates steady at their meeting ending July 29. Mortgage rates jumped in the days leading up to the meeting, as speculation grew among futures traders that central bankers could vote to raise the federal funds rate. Had there been more consensus among economists that the Fed would leave rates unchanged, mortgage rates might not have spiked as much as they did over the past week.Last Monday (July 20), the 30-year rate sat at 6.49% before leaping over 25 basis points to 6.75% to open this week. This marked our highest reading since August 2025.Week over week, the average 30-year mortgage rate jumped 14 basis points to 6.65% APR. A basis point is one one-hundredth of a percentage point, and we calculate our weekly average using daily APRs provided by Zillow over the past five business days.Now, some lenders might course-correct by lowering rates a little until we get closer to the next meeting in September. Central bankers are still widely expected to raise the federal funds rate then, so any coming rate drops will likely be temporary.Explore mortgages today and get started on your homeownership goalsGet personalized rates. Your lender matches are just a few questions away.Do you want to purchase or refinance?What's your property type?How do you plan to use this property?Won't affect your credit scoreWhy mortgage lenders prepped for a hike that didn’t happenThe federal funds rate determines how much lenders need to pay to fund loans like mortgages. If this fee is likely to become more expensive, lenders will pass some additional costs to borrowers by raising mortgage rates. Speculation around rate hikes was fueled by rising oil prices, which have threatened to drive up inflation again. In the Fed’s arsenal of monetary policy tools, its primary means of controlling inflation is to raise borrowing rates. Oil prices have been volatile since the war in Iran began heating back up. Brent crude oil prices (the international oil benchmark) hit $102 a barrel last week, then fell to $88 on Monday following a pause in fighting over the weekend. Lenders have been trying to predict how central bankers will react to these swings without relying on communications from Federal Reserve leadership.Under previous chair Jerome Powell, the Federal Reserve typically telegraphed its decisions ahead of time to avoid surprising markets. New chair Kevin Warsh has been decidedly less transparent since assuming the role in May. For instance, at his first meeting as chair in June, he was the only participant who declined to submit any rate projections. This silence made it more difficult for lenders to predict the direction of overnight borrowing rates, which is why some set mortgage rates as if an increase was coming. Why mortgage rates might not fall When mortgage lenders adjusted their rates in anticipation of a hike, it was with the expectation that the federal funds rate would go up by 25 basis points. Rather than lowering rates, lenders could choose to leave them where they are for now until it’s clearer what to expect in September. While the odds are high for a rate hike of some kind in September, it’s too early to tell whether we’re looking at a 25-basis-point increase or a 50-basis-point increase. It’s been three years since the Fed raised borrowing rates at all, and the precedent has been to move in 25-basis-point increments. Since 2023, there has only been one meeting where the Fed decided to adjust overnight rates by more than 25 basis points.If futures traders coalesce around the idea of a 25-basis-point increase, mortgage rates might flatten out next month, since they were already set for a hike of that size. For now, this seems to be the likelier path. Some economists have voiced the belief that Warsh’s reluctance to publicly forecast a rate path indicates that he could be wary of doing too much too soon. “Structural changes to Fed communications and the launch of multiple task forces suggest a more cautious policy approach in the near term,” said Andrew Dubinsky, senior U.S. economist and executive director at UBS, in a brief from the investment bank. On the other hand, if incoming economic data points to inflation reaching urgent levels, analysts may predict that Warsh will push for a 50-basis-point increase. In that case, mortgage rates would likely rise more in August.