Fed Rate Cut Triggers Ripple Effect on Mortgage Rates
The US Federal Reserve (Fed) has initiated a series of interest rate cuts, with the first reduction of 25 basis points occurring on September 16-17, 2025. This move has had a ripple effect on various interest rates across the nation.
Following the Fed's decision, the national average 5-year ARM rate dropped by 19 basis points to 7.01% on September 27, 2025. Meanwhile, the 5-year ARM refinance rate decreased slightly to 7.41%, down 1 basis point. The 10-year U.S. Treasury yield stood at 4.176% as of September 26, 2025.
The Fed's rate cut brought the benchmark interest rate down to a target range of 4.0% to 4.25%. This move has influenced mortgage rates, with the 15-year fixed mortgage rate decreasing to 5.70%, down 5 basis points. However, the 30-year fixed mortgage rate increased slightly to 6.62%, up 2 basis points.
While the Fed's rate cut has had a moderating effect on mortgage rates, the wide spread between mortgage rates and the 10-year yield means the decline in mortgage rates is not as significant as it could be. If the spread returns to normal, mortgage rates could potentially decline more significantly, possibly even below 6% in 2026. The Fed will continue to monitor inflation and labor market data to determine future rate changes.
