If you’re thinking about buying a home or refinancing your mortgage, it pays to know how mortgages are affected by the federal funds rate, particularly with an interest rate cut expected at the September meeting next week. First, the Federal Reserve or “the Fed,” is the central bank of the U.S. Its job is to manage the supply of money and the cost of credit so that the U.S. economy can prosper. It also sets the federal funds rate, which is the interest rate that banks charge each other for short-term loans, directly affecting what consumers pay when they borrow money.
The Fed also influences mortgage rates, but doesn't set them. Instead, mortgage rates are affected by things like inflation, job growth, a shrinking or growing economy and more. The Federal Reserve's monetary policy is also a factor.
