Jerome Powell cut rates by 0.25% — but what does that actually mean for mortgages?

The short answer: not much. Mortgage rates don’t take their marching orders from Jerome Powell, the FOMC, or the federal funds rate.

This is one of the most common misconceptions in finance.

Yes, the Federal Reserve holds several Federal Open Market Committee (FOMC) meetings every year to set the federal funds rate — the overnight rate banks charge each other. That rate influences short-term borrowing and the economy as a whole, but it does not directly set mortgage rates.

If you really want to know where mortgage rates are headed, you’re better off watching the 10-year U.S. Treasury yield.

Here’s why: mortgage rates are tied to Mortgage-Backed Securities (MBS), which are bonds made up of pools of home loans. These bonds trade daily on the secondary market, and their prices move opposite to mortgage rates. When MBS prices rise, mortgage rates fall. When MBS prices fall, mortgage rates rise.

MBS yields tend to follow the 10-year Treasury yield (with a spread). The 10-year is the benchmark for long-term borrowing costs, but MBS have to offer a slightly higher yield to compensate investors for added risk — like prepayments, defaults, and servicing costs.

Historically, the spread between the 30-year mortgage rate and the 10-year Treasury has averaged around 1–2 percentage points. But that spread can widen during periods of market stress, which is why mortgage rates can remain high even when Treasury yields fall.

I spoke to a loan officer today who said the spread is expected to narrow in 2026 — but that doesn’t necessarily mean lower mortgage rates. If MBS demand weakens, rates could still rise even with a tighter spread.

Case in point: yesterday, the Fed cut rates — and mortgage rates went up. The 10-year Treasury yield rose, and mortgage rates followed.

Don’t just take my word for it. Look at the 10-year Treasury yield on September 16.

Now compare it to September 17.

See the difference? My loan officer also confirmed mortgage rates went up after the cut.

And yet, I got this email from Lennar today — suggesting rate cuts make homes cheaper.

Here’s the problem: Lennar (and most builders) aren’t trying to educate you. They’re trying to sell homes. So they oversimplify — or outright mislead — buyers about what a Fed cut means. Maybe they’re confused. Maybe they know better and just don’t care. Either way, it’s not doing you any favors.

Bottom line: don’t blindly trust headlines, builders, or salespeople. Most of them don’t actually understand how mortgage rates work. If you want to protect your wallet, learn how these markets really move — or someone else will gladly take advantage of that gap in your knowledge.