What typically happens to mortgage rates if the Federal Reserve decreases interest rates?

When the Federal Reserve decreases interest rates, the overall cost of borrowing money becomes cheaper. This reduction in the federal funds rate influences various types of interest rates, including mortgage rates. Typically, as the Fed lowers interest rates, lenders can borrow money at reduced costs and are thus incentivized to offer lower rates to consumers. This tactic is often employed to stimulate the economy by encouraging spending and investment, which includes home buying.

Consequently, mortgage rates usually decrease in response to a reduction by the Federal Reserve, making homeownership more accessible to potential buyers. It’s important to note that while the relationship between the Fed's rate changes and mortgage rates is generally observed, other factors, such as market conditions and inflation expectations, can also play a significant role in determining the exact movement of mortgage rates. However, the initial and direct effect of a Fed rate decrease is to lower mortgage rates.