Fed Funds Rate vs Mortgage Rates
The Fed doesn't set your mortgage rate. Here's what it actually does.
Over the past year, the Fed Funds Rate has moved from 4.33% to 3.64% while mortgage rates have moved from 6.65% to 6.18%. Five years ago, the 30-year rate was 3.08% with the Fed at 0.07%, and today's 2.54% gap is close to the 2.83% historical average.
Fed Funds
3.64%
Mar 2026
30yr Rate
6.18%
Mar 2026
Spread
+2.54%
30yr minus Fed
Avg Spread
2.83%
since 1971
Last updated April 19, 2026
About This Data
The Federal Reserve does not set your mortgage rate. The Fed sets the Federal Funds Rate, which is the overnight rate banks charge each other for short-term loans. Your 30-year mortgage is a long-term loan bundled into bonds that trade on the open market, and it tracks the 10-year Treasury yield far more closely than the Fed's benchmark.
That said, the two are related. When the Fed raises short-term rates to fight inflation, long-term rates usually rise too — but not always in lockstep, and not by the same amount. The gap between the Fed Funds Rate (dashed line) and the 30-year fixed rate (gold line) has averaged around 2% historically, but in recent years it has widened well beyond that.
That wider gap is what explains why Fed rate cuts in 2024 barely moved mortgage rates. Markets were pricing in uncertainty about inflation, deficits, and bond demand — risks that live in the 10-year Treasury, not the overnight lending market. If you're waiting for a Fed cut to lower your mortgage rate, this chart shows why that bet doesn't always pay off.
Frequently Asked Questions
Does the Fed set mortgage rates?
No. The Fed sets the Federal Funds Rate, which is the overnight rate banks charge each other. Your 30-year mortgage rate tracks the 10-year Treasury yield, not the Fed Funds Rate. The two are related because Fed policy influences the whole rate curve, but mortgages can move in the opposite direction from Fed decisions in the short run.
Why didn't my mortgage rate drop when the Fed cut rates?
Mortgage rates already price in expected Fed moves weeks or months before they happen. By the time the Fed actually cuts, that news is baked in. Mortgage rates can even rise after a cut if the market thinks the Fed is cutting too slowly or if inflation expectations pick back up.
What is the historical spread between Fed rates and mortgage rates?
Since 1971, the 30-year fixed rate has averaged about 2% above the Fed Funds Rate. That spread widens when markets are nervous about inflation or bond demand, and narrows when the outlook is calm. In recent years it has run well above the historical average.
What actually determines my mortgage rate?
The 10-year Treasury yield is the biggest driver. On top of that, lenders add a spread to cover prepayment risk and credit risk, which varies with market conditions. Fed policy, inflation expectations, and global demand for U.S. bonds all feed into the 10-year yield, which is why Fed moves still matter, just indirectly.
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