How Do Lower Interest Rates Affect Mortgage Rates?
Mortgage rates usually decrease before and during a phase of interest rate reductions: The average 30-year fixed-rate mortgage fell to 6.35% from 6.5% last week, marking the lowest point since October 2024, as reported by mortgage buyer Freddie Mac. The borrowing costs for 15-year fixed-rate mortgages also decreased to 5.5% from 5.6%, approaching the rate from a year ago of 5.27%. When the Federal Reserve reduced the funds rate to a range of 0% to 0.25% during the pandemic, 30-year mortgage rates reached historic lows between 2.7% and 3% by the end of 2020, according to data from Freddie Mac. Consumers who refinanced their mortgages in 2020 saved approximately $5.3 billion each year as rates fell, as stated by the Consumer Financial Protection Bureau. In a similar vein, mortgage rates surged to around 7% when interest rates were increased in 2022 and 2023, although mortgage rates seemed to respond within weeks of the Fed's decisions to either cut or raise rates.

How Do Treasury Bonds React to Decreased Interest Rates?
Long-term Treasury yields are significantly affected by interest rates, with lower rates generally leading to reduced yields. When the Federal Reserve lowered rates to almost zero during the pandemic, 10-year Treasury yields dropped to a historic low of 0.5%. As Treasury note yields decrease, borrowing costs for consumers also fall, which is expected to result in lower rates for credit cards, business loans, vehicle purchases, and other types of loans.

Key Background
A more relaxed monetary policy came after months of pressure from President Donald Trump, who has criticized Fed Chair Jerome Powell for being "TOO LATE" and has advocated for substantial rate cuts. In recent weeks, Wall Street expected a reduction in interest rates, spurred by stronger-than-anticipated jobs data that suggested the labor market was deteriorating more quickly than expected, alongside inflation, which rose again in August while remaining above the central bank's 2% target. The Fed operates under a dual mandate of achieving full employment and maintaining stable inflation when evaluating interest rates, although Powell indicated last month that the "shifting balance of risks" regarding the U.S. economy might "justify a change in our policy approach."