Analysis
The Fed Raised Rates. Here’s What It Means for Mortgage Rates
On September 16, 2026, the Federal Reserve raised the federal funds rate by 0.25 point to 3.75%–4.00%. Mortgage rates do not follow that rate. They follow the 10-year Treasury yield, which moves on inflation expectations. Core inflation is 2.4%; headline inflation is 3.4% because of energy prices tied to the Iran conflict. If oil eases, mortgage rates have room to fall. The Fed’s own outlook, though, points to at least one more hike this year, so I’m optimistic but not calling the bottom.
What did the Fed do, and why?
The Federal Open Market Committee voted 12-0 to raise its target range from 3.50%–3.75% to 3.75%–4.00%. Chairman Kevin Warsh said inflation “is too high and has been too high for too long,” and the committee described it as broad-based rather than tied to a single commodity. Sixteen of 19 officials project at least one more hike before year-end, and the Fed does not expect to reach its 2% target until 2029.
How does a rate hike lower inflation?
Inflation is too many dollars chasing too few goods and services. Raising the rate at which banks borrow makes credit more expensive across the economy. Businesses and households borrow and spend less, demand cools, and price pressure eases. On paper, the theory makes sense.
Why is this move a head scratcher?
The current spike is largely a supply story. The Iran conflict disrupted oil supply, and gasoline is up 27.4% from a year ago. A rate hike cools demand; it cannot reopen oil supply or negotiate a peace deal. Central banks often “look through” supply shocks for that reason. This committee chose not to, and that is the real disagreement between the Fed’s view and the energy-only view.
What does the latest data say about inflation?
| Measure (August 2026 CPI) | Monthly | Year over year |
|---|---|---|
| All items (headline) | +0.4% | 3.4% |
| Core (excluding food and energy) | +0.3% | 2.4% (lowest since March 2021) |
| Energy | +2.1% | 16.3% |
| Gasoline | +3.9% | 27.4% |
| Shelter | +0.3% | 3.0% |
| Food | +0.1% | 2.7% |
That gap between 3.4% and 2.4% is why I read this as an energy problem first. To be fair to the other side, the Fed’s own projections show core PCE inflation at 3.4% for 2026, and Warsh said underlying trends have not meaningfully improved. Different inflation gauges are telling different stories, and I’m watching whether they converge.
Do mortgage rates follow the federal funds rate?
No, and this is the most common misconception I correct in my classes. The federal funds rate is a one-day overnight rate. A mortgage is a 15 to 30 year product. Comparing the two is comparing the shortest term to the longest. Mortgage rates track the 10-year Treasury yield and the mortgage-backed securities market, which price in where investors expect inflation to go. The Fed influences those expectations, but it reacts to markets more than it sets them.
Think of a mortgage as a product, not just a rate. You are buying the use of money, and its price moves with the market’s outlook on inflation.
Where things stand today: the 10-year Treasury yield is near 5.18% and one daily survey has the 30-year conventional average near 7.17%. Yields have risen for two straight sessions ahead of a run of Fed speakers, so rates have not relaxed yet.
Why am I optimistic?
Inflation was improving through the first quarter of 2026. When the Iran conflict shocked oil supply, prices and inflation expectations spiked with it. Strip out energy and inflation is 2.4%. If the conflict de-escalates and energy prices ease while the Fed stays vigilant, that combination gives yields, and therefore mortgage rates, room to move lower. The risk is a “one more hike” path that keeps yields elevated longer.
What other economic reports should you know about?
- Jobs (August): Employers added 162,000 jobs, more than double expectations, versus a 12-month average of about 31,000. Unemployment held at 4.1% and average hourly earnings rose 3.1% from a year earlier. Labor force participation is down 0.5 point since January, a fair caveat.
- Retail sales (August): Sales rose 1.2%, the biggest gain since March and stronger than expected. Higher gas prices can inflate nominal sales, so I treat it as resilient rather than booming.
- Census (2025 data): The official poverty rate fell to 10.2%, and real median household income rose 2.6% to $87,460, the highest since tracking began in 1967.
What should buyers and homeowners do now?
Rates change daily, and the right loan depends on more than the rate. Structure, product, and lender all matter. I work with six vetted lenders and shop for the best fit, not just the lowest number. If you are deciding whether to buy, refinance, or wait, talk to us before you assume the Fed’s move dictates your rate.
Frequently asked questions
Why did the Fed raise interest rates in September 2026?
The FOMC voted 12-0 on September 16 to raise the target range to 3.75%–4.00%. Chairman Warsh said inflation is too high and has been for too long, and described it as broad-based.
Do mortgage rates follow the federal funds rate?
Not directly. They track the 10-year Treasury yield and the mortgage-backed securities market, which move on inflation expectations.
Will mortgage rates go down after the Fed hike?
They fall when inflation expectations fall. Core CPI is 2.4%, and if the oil shock eases, yields have room to decline. The Fed’s projections for another hike could keep them elevated longer.
What is the current mortgage rate?
As of September 25, 2026, one daily survey showed the 30-year conventional average near 7.17% with the 10-year Treasury near 5.18%. Contact us for a quote based on your scenario.
Talk through your options
Questions about timing, structure, or which product fits? Reach out to the J. Charles Lending team. Knowledge. Service. Value.
Sources
Fed decision and projections: Charles Schwab, KPMG · CPI: US Inflation Calculator (summarizing BLS data) · Jobs: Bureau of Labor Statistics · Retail sales: Quartz · Census: WBIW · Rates: The Mortgage Reports
This article is educational market commentary and reflects the author’s opinion as of September 25, 2026. It is not a rate quote, loan offer, or financial advice. Rates and terms vary by borrower and change daily. J. Charles Lending, Broker/Owner Charlie Braden, NMLS #1283114.