September 18, 2024

The Fed Cut Rates Half a Point — What It Means for a Mortgage

Q: If mortgage rates moved down with the broader rate environment, what would that actually do to a monthly payment?

Lower monthly payment (illustrative 0.50-point rate drop): $105.

What happened

On September 18, 2024, the Federal Reserve cut its benchmark federal funds rate by 0.50 percentage points, moving the target range to 4.75%–5.00%. It was the Fed's first rate cut since it began aggressively raising rates in 2022 to fight inflation.

Why it matters

The federal funds rate is the rate banks charge each other overnight — it doesn't set mortgage rates directly. Mortgage rates track longer-term borrowing costs (most closely the 10-year Treasury yield), which move on expectations about where the Fed is heading, not just its most recent decision. That's why mortgage rates sometimes move before a Fed meeting, or don't move much on the day of one. But over time, a sustained shift in the Fed's stance filters through to the borrowing costs that do set mortgage rates — which is why a cut like this one matters for anyone with a mortgage, even though the connection isn't immediate or one-to-one.

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If mortgage rates moved down with the broader rate environment, what would that actually do to a monthly payment?

Lower monthly payment (illustrative 0.50-point rate drop)

$105