US mortgage rates are staying high – and the Fed can do very little about it

Even though the Fed cut interest rates in 2024 and 2025, mortgage rates have stayed high, frustrating many would-be homebuyers. AP Photo/Jenny Kane

U.S. homebuyers can't get a break.

The 30-year mortgage rate has been stuck at recent highs well above 6% and now averages 6.48%, according to the data released on June 4, 2026, by Freddie Mac, which bundles and sells home loans. That marks another blow for Americans hoping to buy a home or refinance their current mortgage that had been locked in at similarly steep rates. It's also a sharp jump since February 2026, when the financing cost of a 30-year mortgage had dropped as low as 6%.

Pricey mortgages have been weighing on the housing market more broadly, which has not escaped President Donald Trump. He has waged an aggressive campaign to pressure the Federal Reserve, which sets the short-term benchmark rate, to make deeper cuts to the cost of borrowing. The new Fed chief, Kevin Warsh, has also been touting rate cuts since he was nominated by Trump, a reversal from his earlier anti-inflation stance.

As a professor of finance, I have been asked why mortgage rates are rising even though the Fed has been keeping rates steady after a series of cuts in 2024 and 2025. The central bank actually has little control over the cost of home loans – and Americans may be stuck with high rates for a long time.

How much can the Fed control mortgage rates?

Not that much.

The Fed directly influences the federal funds rate, a short-term interest rate that banks charge one another for overnight loans. Many people assume that mortgage rates move in lockstep with the Fed's decisions, but, in fact, they're driven primarily by financial markets.

Thirty-year mortgages are long-term assets. Investors purchasing those loans, either directly or through mortgage-backed securities, are making decisions based on what they believe inflation, economic growth, government borrowing and interest rates will look like years into the future.

So what does affect mortgage rates?

Inflation is one of the biggest factors. Although inflation has declined substantially from the peaks experienced in 2022 and 2023, investors remain uncertain about when it will return to the Fed's official long-term target of 2%, especially with elevated oil prices and the ongoing conflict with Iran.

This uncertainty matters because when lenders originate a 30-year, fixed-rate mortgage, they're committing capital for decades. If inflation turns out to be higher than expected, the future payments that lenders receive will be worth less in real purchasing-power terms. To compensate for that risk, investors demand higher yields for the higher cost of borrowing. The greater the risk, the higher the yield.

Federal government borrowing is another important factor. The long-term budget outlook by the independent scorekeeper Congressional Budget Office projects continuing large federal deficits and rising debt levels in the years ahead. It estimated that Trump's massive tax and immigration bill, passed by the Republican-controlled Congress in 2025, will add $US3.4 trillion to federal deficits through 2034.

Financing the deficit requires the U.S. Treasury to issue large amounts of debt by selling Treasury bonds and other securities. When the supply of government bonds increases, investors may require higher yields to absorb that additional supply. And because Treasury yields serve as a benchmark for many different types of borrowing costs throughout the economy, mortgage rates often move with them. In particular, mortgage rates tend to track the yield on the 10-year U.S. Treasury note much more closely than they track the federal funds rate.

What else affects mortgage rates?

Adding another layer of complexity are mortgage-backed securities, which are made up of bundled loans that are sold to investors rather than remaining on a lender's balance sheet. Investors who own these securities face risks that Treasury bond investors do not. Chief among them is the right to refinance: Homeowners can refinance when rates fall, pay the loan down more quickly than required by the mortgage contract, or move unexpectedly and completely repay loans early.

So investors generally demand a premium above Treasury yields when buying mortgage-backed securities to compensate for this prepayment risk. Otherwise, they would be stuck with a return lower than they initially expected when they bought that loan.

Since mortgage rates are high, the general expectation is that many homeowners will refinance at lower rates once they can. That means the refinance risk is greater than usual – and it has kept the difference, or spread, between 10-year Treasuries and mortgage rates elevated compared to historical norms, according to the Urban Institute's Housing Finance Policy Center.

In short, even if Treasury yields remain stable, a larger mortgage spread could keep mortgage rates higher than borrowers might expect. This helps explain why mortgage rates don't always move in the same direction as Fed policy, and why mortgage rates have stayed high even after the Fed started lowering short-term interest rates in 2024.

Why it helps to take the long view

Last, there's an important historical perspective that's often missing from discussions about today's mortgage market.

Many Americans compare current mortgage rates with the extraordinarily low rates available during 2020 and 2021, when some borrowers secured 30-year mortgages at rates that were below 3%. Those were among the lowest mortgage rates ever recorded in the United States – the exception rather than the rule – and a result of the Fed's emergency measures to steer the economy out of recession.

In fact, throughout much of the 1990s and early 2000s, mortgage rates frequently ranged between 6% and 8%. Viewed through that lens, today's rates are far less unusual than many Americans would think.

Mortgages have been around more than two millenia, surviving empires, kingdoms, depressions, wars, financial crises and technological revolutions. The details have changed dramatically, but the underlying economics have not: Lenders have always demanded compensation for inflation risk, uncertainty and the time value of money.

That's why mortgage rates aren't determined solely by the Fed but by millions of investors making judgments about the future. And at the moment, those investors remain cautious.

Michael J. Highfield does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.