Federal Reserve statement explained – September 2025

Officials at the Federal Reserve have reduced the target range for the federal funds rate by a quarter of a percentage point from 4.25% – 4.5% to 4.00% – 4.25%. The move follows widespread speculation that the Fed would cut rates multiple times this year. Following its September meeting, officials indicated that there could be two additional cuts before the end of the year.

Mortgage rates have already dropped in anticipation of the Fed’s decision. Currently, the weekly average mortgage rate is hovering at 6.35% for a 30-year fixed-rate mortgage and 5.5% for a 15-year fixed-rate mortgage – the lowest in nearly a year.

The Fed had held the federal funds rate steady for the prior 9 consecutive months following a period of hikes to battle inflation. Now, gloomy job market reports appear to have convinced the Fed that a rate drop is necessary to support the economy.

According to the Bureau of Labor Statistics, the U.S. economy added just 22,000 jobs in August. Meanwhile, the unemployment rate rose from 4.2% to 4.3% - the highest since October 2021.

Setting the federal funds rate allows the Fed to influence the economy and balance the push and pull between employment and inflation. Cutting rates can be a way to combat a weak labor market by reducing borrowing costs to stimulate the economy.

The Fed typically reduces rates in an effort to increase consumer spending and demand for goods, which can stimulate employment. However, if the Fed makes it too easy to borrow, it can send prices soaring and speed up inflation. Another factor that has complicated matters is that inflation has also continued to tick up again over the summer.

What this means for home buyers

While the latest job reports spell trouble for the labor market and overall economy, there may be a silver lining for prospective home buyers. When the federal funds rate is reduced, you can typically expect mortgage rates to follow.

Some would-be home buyers have been priced out of the market due to higher interest rates and home prices. The housing market has cooled, and home sales in 2025 are likely to hit a 30-year low. As a result, there’s been a dip in the average sale prices of home has dipped.

Lower home prices and the prospect of lower interest rates on the horizon can make home ownership more attainable and affordable. However, if unemployment is rising, some prospective buyers who lose their jobs will have to put their home buying plans on indefinite hold.

What this means for those refinancing

When interest rates hit historic lows during the height of the COVID-19 pandemic in 2020 and 2021, many homeowners chose to refinance their mortgage to score a lower interest rate. Once the Fed began raising the federal funds rate to combat inflation, refinancing became a less-attractive option because many homeowners already had a lower mortgage rate.

Now that the Fed has begun cutting interest rates, refinancing may once again become an attractive financial option.

When you decide to refinance, it’s important to not only consider the money you’ll save each month with a different interest rate, but also the up-front costs of refinancing. If you plan on selling your home in the near future, you may not have enough time to break even on the closing costs of refinancing.