Why mortgage rates are still high despite the Fed rate cuts

The calendar has turned to a new year, bringing with it a tricky environment for mortgage borrowers to navigate. Closing out the year on a positive note, mortgage rates fell by a full percentage point after the Federal Reserve delivered three consecutive rate cuts. The moves dropped the federal funds rate — the rate banks charge to lend each other money — from a range of 5.25% to 5.50% in September to 4.25% to 4.50% in December.

Inflation also trended downward in 2024, though the decline wasn't significant.  A year ago, the annual inflation rate stood at 3.1%, which dipped over the summer and ticked back up in November to settle at 2.7%, according to the latest Consumer Price Index. Mix in a stronger-than-expected jobs report in December, and you can understand the Fed's decision to cut rates and the potential for lower mortgage rates.

When the Fed cuts rates, it often leads to lower mortgage rates because borrowing costs drop overall. Unfortunately, though, mortgage rates have instead climbed higher since the Fed rate cuts. Here's why that's happened.