- The Federal Reserve's latest rate hike pushes its benchmark range to 3.75%-4%, but the impact on mortgages and savings accounts is not identical. Mortgage rates remain heavily tied to longer-term Treasury yields, while deposit rates can respond more directly to changes in short-term rates.
The Federal Reserve raised its benchmark interest rate by 25 basis points on Sept. 16, lifting the federal funds target range to 3.75% to 4%. The unanimous decision was the central bank's first rate increase since 2023. The Fed said economic activity was expanding at a solid pace, while inflation remained elevated. The decision has immediate implications for consumers, but the effect depends heavily on the type of borrowing or savings product involved.
For homebuyers, the latest move does not automatically mean mortgage rates will rise by another quarter percentage point. In fact, mortgage borrowing costs are influenced more heavily by the bond market than by the overnight federal funds rate.
For savers, the picture is different. Banks and credit unions generally adjust deposit rates in response to changes in short-term market rates, although the timing and size of those adjustments vary by institution and account.
The Fed's latest projections also show how the policy outlook has changed. Policymakers' median projection places the federal funds rate at 4.1% at the end of 2026, compared with 3.8% in the June projections. The median projection is 4.1% for 2027 and 3.9% for 2028.
Mortgage Rates Depend More on Treasury Yields
Mortgage rates are already elevated despite the Fed's latest decision. Freddie Mac reported that the average 30-year fixed mortgage rate reached 7.03% on Sept. 24, up from 6.95% a week earlier and 6.76% on Sept. 10. The 15-year fixed rate increased to 6.42%.
That increase has kept mortgage borrowing costs above 7% even as markets process the Fed's policy decision. Wealthier Today's coverage of mortgage rates shows how higher Treasury yields have been feeding into the housing market. The reason is that long-term mortgage rates are more closely connected to the 10-year Treasury yield than to the federal funds rate.
Research from the Federal Reserve Bank of Dallas found that mortgage rates have a substantially stronger relationship with movements in the 10-year Treasury than with changes in the federal funds rate. Its analysis estimated that the mortgage rate has an approximately 85% beta to the 10-year Treasury rate, compared with less than 20% for the federal funds rate, holding other variables constant.
Fannie Mae similarly notes that the 10-year Treasury is the more important benchmark for 30-year mortgages because its duration is closer to that of a typical long-term home loan. That means the Fed can raise or lower its policy rate without producing an equivalent move in mortgage rates.
Inflation expectations, Treasury yields, mortgage-backed securities and broader financial-market conditions can all influence the rate borrowers ultimately receive. The recent move above 7% for US mortgage rates illustrates that relationship. For borrowers, the latest Fed decision therefore reinforces the importance of watching the 10-year Treasury alongside the federal funds rate.
Savings Rates Could Remain Elevated
Savers have a more direct connection to the Fed's short-term policy rate. When the federal funds rate rises, banks generally face higher short-term funding costs and may raise yields on savings accounts, money-market products and certificates of deposit. The adjustment is not uniform, however, and banks are not required to pass the full increase to depositors.
Current market rates show why that distinction is important. Bankrate's Sept. 25 survey showed top high-yield savings accounts offering as much as 4.20% APY, compared with a national average of 0.64%. This spread means consumers holding money in a traditional savings account may earn considerably less than customers who move cash to a competitive high-yield account.
At the same time, the Fed's projections suggest that rates may remain relatively high through the near term. The median 2026 federal funds projection of 4.1% is only modestly above the current target range, while the longer-run median is 3.2%.
The direction of future savings rates will depend on where monetary policy and market rates go from here. If the Fed keeps rates elevated, competitive deposit accounts could continue offering relatively high yields. If the central bank eventually cuts rates, banks could begin reducing deposit yields, particularly where competition for deposits weakens.
The next major inflation data point is scheduled for Sept. 30, when the Bureau of Economic Analysis will release August Personal Income and Outlays data, including the Personal Consumption Expenditures price index. The report is particularly relevant because the Fed uses PCE inflation as a key measure when assessing price pressures.
The latest decision therefore leaves consumers facing different rate dynamics. Mortgage borrowers remain exposed primarily to long-term bond yields, while savers continue to benefit from relatively high short-term rates at competitive banks.