Fed Rates Just Went Up – Here’s What Actually Moves Mortgage Rates

If you’ve been watching mortgage rates and wondering why they jump around, you’re not alone. It can feel like rates move for no reason at all. They don’t. There’s usually a handful of things happening behind the scenes.

Let’s break down what drives interest rate changes, in plain terms, so you can make sense of the headlines the next time rates shift.

What Just Happened: The September 2026 Fed Decision

On September 15–16, 2026, the Federal Open Market Committee voted unanimously — 12 to 0 — to raise the benchmark interest rate by 0.25%, bringing the target range to 3.75%–4.00%. It’s the first rate hike since 2023, and it wasn’t a surprise to markets.

Fed Chair Kevin Warsh cited solid economic growth and consumer spending, but pointed to inflation as the reason for the move. Core PCE inflation — the Fed’s preferred measure — is still projected at 3.4% by the end of 2026. That’s too high for comfort, and the Fed is responding accordingly.

The bigger headline for buyers: the Fed’s own projections suggest one more 25-basis-point hike is likely before the end of the year, which would bring the benchmark rate to around 4.1%. That doesn’t mean mortgage rates will jump that much, but it does mean the pressure on rates isn’t going away soon.

How the Federal Reserve Affects Your Mortgage Rate

The Federal Reserve sets a rate called the federal funds rate. That’s the rate banks charge each other for overnight loans. It’s not the same thing as your mortgage rate, but it influences it.

When the Fed raises rates, borrowing across the whole economy tends to get more expensive. Mortgage rates usually follow that trend, even though they’re set separately by the bond market.

The Fed doesn’t move this rate on a whim. They’re watching inflation, jobs numbers, and how fast the economy is growing, then making a call based on where things seem to be headed. Former Fed Vice Chair Stanley Fischer talked about this in a 2017 speech, making the point that a lot of the Fed’s influence comes not just from what it does, but from what people expect it to do. Markets react to signals just as much as actions.

Gershman Mortgage President Adam Mason joined KSDK TV 5 to talk through elevated rates, the Fed’s role, and what it means for buyers and sellers in the St. Louis market. Watch the interview here

Inflation Is the Big One

Here’s the simple version: when prices go up faster than lenders expect, they raise rates to protect themselves. Money loses value over time when inflation is high, so lenders charge more to make sure they’re not losing money by lending it out.

This is why you’ll hear about inflation reports moving mortgage rates almost immediately. Investors and lenders are constantly adjusting their expectations based on the latest numbers.

Jobs and Growth Matter Too

A strong job market and solid economic growth usually push rates up. It sounds backwards, but here’s why: when more people are working and spending money, demand goes up, which can push prices up too. Lenders build that expectation into their rates.

On the flip side, when the economy slows down, or unemployment rises, rates often drop. Lenders and the Fed try to make borrowing cheaper to encourage spending and keep things moving.

The Bond Market Plays a Bigger Role Than People Realize

Mortgage rates are closely tied to the bond market, especially the 10-year Treasury yield. When investors think the economy is heating up, they sell bonds, which pushes yields (and mortgage rates) up. When they’re nervous about the economy, they buy bonds, which pushes yields (and rates) down.

This is part of why rates can move even when the Fed hasn’t done anything. Investors are reacting to what they think is coming next.

Global Events Show Up Here Too

Things happening outside the U.S., like economic slowdowns overseas or global uncertainty, can also push money into or out of U.S. bonds. That shifts rates here at home, even when nothing’s changed domestically.

What This Means for You Right Now

You can’t control the Fed, inflation, or the bond market. But you have more options than you think, even in a higher rate environment.

Here’s what buyers are doing right now to make the numbers work:

• Temporary buydowns. A seller or builder can pay to reduce your interest rate for the first one to two years of your loan. A 2-1 buydown, for example, lowers your rate by 2% in year one and 1% in year two before settling at the full rate. It’s a real way to ease into a higher-rate mortgage while your income grows.
• Adjustable rate mortgages (ARMs). An ARM starts with a lower fixed rate for a set period — usually five or seven years — before adjusting. If you’re not planning to stay in the home long term, or if you expect rates to drop before the adjustment kicks in, an ARM can save you money monthly from day one.
• Down payment assistance programs. Programs through state housing agencies and government-backed loans can reduce how much cash you need upfront, freeing up funds for other costs. VA and USDA loans still offer zero-down options for eligible buyers.
• Rate locks. Once you’re under contract, locking your rate protects you from further increases while your loan is processed. Ask your Gershman Mortgage loan officer about lock periods and what happens if your closing timeline shifts.

The buyers who wait for rates to “come back down” are taking a gamble. Nobody, not even the Fed, can predict rates with certainty. If you find a home you can afford now, it’s worth running the real numbers with a loan officer before deciding to wait.

Talk to a Gershman Loan Officer

Higher rates don’t have to mean sitting on the sidelines. At Gershman Mortgage, our loan officers will walk you through your real options — buydowns, ARMs, down payment assistance programs, and what today’s rates actually mean for your monthly payment. We’ve been helping buyers navigate every kind of market since 1955, and we’ll help you find the right path forward.

Contact us to get connected with a Gershman loan officer near you.

Frequently Asked Questions

Does the Fed set mortgage rates? No. The Fed sets the federal funds rate, which is what banks charge each other overnight. Mortgage rates are set by the bond market and tend to move in the same general direction, but they’re not the same number and don’t move in lockstep.

Why did the Fed raise rates in September 2026? The Fed cited persistent inflation — core PCE is still projected at 3.4% — alongside solid economic growth. With inflation still above their 2% target, the committee voted unanimously to raise rates by 0.25% to cool things down.

What are mortgage rate predictions for the rest of 2026? The Fed’s own projections suggest one more 25-basis-point hike is likely, which would bring the target range to around 4.1%. That said, projections can change based on incoming economic data.

What can I do to get a lower mortgage rate right now? A few options: a temporary buydown reduces your rate for the first one to two years; an ARM gives you a lower starting rate if you don’t plan to stay long term; down payment assistance programs can free up cash; and locking your rate protects you once you’re under contract. A Gershman loan officer can walk you through which option fits your situation.

Will mortgage rates go down in 2026? Nobody can predict rates with certainty, not even the Fed. Waiting always carries a trade-off. If you find a home you can afford now, it’s usually worth talking to a loan officer about your options instead of trying to time the market.

Can I lock in my rate before closing? Yes, most lenders offer rate locks that hold your rate for a set period while your loan is processed. Ask your loan officer about how long a lock lasts and what happens if your closing gets delayed.

What has the biggest impact on rates day to day? Inflation reports and economic data releases tend to move rates the fastest, since they shift what investors expect the Fed to do next.

Do different loan types have different rates? Yes. Conventional, FHA, VA, and jumbo loans can all carry different rates based on the risk involved and the guidelines behind each program. Your credit score, down payment, and loan term also factor in.

How often do mortgage rates change? They can change daily, sometimes even multiple times a day, since they’re tied to bond market activity. That’s different from the Fed, which only meets a handful of times a year to set the federal funds rate.

Is a lower rate always the better deal? Not necessarily. A slightly higher rate with lower fees or closing costs can sometimes save you more money overall, depending on how long you plan to stay in the home. It’s worth asking your loan officer to run the numbers both ways.

Will refinancing later help if rates drop? It can, but refinancing comes with its own closing costs, so it only makes sense if the savings outweigh what you’d pay to refinance. Your Gershman loan officer can help you figure out the break-even point.

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At Gershman Mortgage, communities, families, and homes are at the heart of what we do. We’ve been doing this since 1955 – over 70 years of helping people finance homes across the Midwest and beyond. We’re independently owned, underwrite loans in-house and are licensed in 22 states. Built on the core values of honesty, integrity, entrepreneurial spirit, and customer-first service, we’re committed to providing an exceptional homebuying experience. Our goal is simple: to exceed expectations and build lifelong relationships.

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