# The Fed Rate Increase and its effect on mortgage rates

By Stetson Lowe (@stetsonlowe) · Published 2026-09-17

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**Yes, the Federal Reserve raised its target range for the federal funds rate by 0.25 percentage points today (September 16, 2026) to 3.75%–4.00%.** This was a unanimous decision by the Federal Open Market Committee (FOMC) and the first rate increase since July 2023. Officials cited elevated inflation and said the move supports a faster return to their 2% inflation goal.

What is the federal funds rate?

The **federal funds rate** (often just called the “Fed rate” or “fed funds rate”) is the interest rate that banks charge one another for very short-term (usually overnight) loans of their reserve balances held at the Federal Reserve.

\- Banks must maintain certain reserve levels. Those with excess reserves lend to those that need more.

\- The FOMC sets a **target range** for this rate (currently 3.75%–4.00%) and uses tools—mainly the interest rate it pays on reserves and overnight repurchase/reverse-repurchase operations—to keep the actual rate within that range.

\- It is the Fed’s primary tool for conducting monetary policy. Raising it makes short-term borrowing more expensive, which tends to cool economic activity and help control inflation. Lowering it has the opposite effect.

It does **not** directly set consumer rates (credit cards, auto loans, mortgages, etc.), but it strongly influences them.

How does the Fed rate affect long-term mortgage rates?

The connection is **indirect**, especially for fixed-rate mortgages (the most common type).

\- **Short-term / adjustable-rate products** (e.g., adjustable-rate mortgages or HELOCs) are more directly tied to the federal funds rate or the prime rate (which usually moves with the fed funds rate). These often rise or fall relatively quickly after a Fed decision.

\- **Long-term fixed-rate mortgages** (15- or 30-year) are primarily benchmarked to longer-term Treasury yields, especially the **10-year Treasury note**. Mortgage rates typically sit a bit above the 10-year yield (the difference is called the “spread” or “mortgage-Treasury spread”), reflecting credit risk, prepayment risk, servicing costs, and other factors.

**How a Fed rate hike still influences long-term mortgage rates:**

1\. Higher short-term rates and expectations of further Fed tightening (or a higher “neutral” rate) can push longer-term Treasury yields higher as investors demand more compensation for holding bonds.

2\. Markets often price in expected Fed moves _before_ the actual announcement. Today’s widely anticipated hike was largely already reflected in bond and mortgage rates.

3\. Broader factors matter a lot: inflation expectations, economic growth outlook, Treasury supply/demand, and risk sentiment. These can cause mortgage rates to move independently of (or even opposite to) the federal funds rate for periods of time.

4\. Historically, only a portion of fed-funds moves fully pass through to 30-year mortgage rates; the link to the 10-year Treasury is much stronger.

**Bottom line for today’s decision:** A quarter-point hike alone does not automatically raise 30-year mortgage rates by the same amount. Because the move was expected, any immediate effect on fixed mortgage rates is likely to be modest. Future path of rates, inflation data, and bond-market reaction will matter more for where mortgage rates settle in the coming weeks and months.

If you’re shopping for a mortgage or refinancing, current rates still depend heavily on your credit, loan type, down payment, and the lender’s specific pricing—not just the Fed’s latest decision. Reach out to your trusted local mortgage broker to get a one on one consultation on how todays decision will effect your home buying power, interest rate and payment.

-   Stetson Lowe - your highest rated and most recommended mortgage broker in Utah County, Utah. Serving all of Utah. He can be reached at 801-318-4996 or [UThomeloan.com](http://UThomeloan.com)