(NerdWallet) – Mortgage rates are likely to remain mostly unchanged in the first half of September. After that, the direction of mortgage rates depends on what the Federal Reserve does at its two-day meeting ending Sept. 17.

If the Fed cuts short-term interest rates at the meeting, then mortgage rates should stay about the same or drop a little bit over the rest of the month. Right now, forecasters expect a cut. But if the Fed leaves short-term rates alone, then markets will be surprised and mortgage rates will probably bounce higher.

It’s not great for buyers and refinancers

The 30-year fixed-rate mortgage averaged a little under 6.7% in August. Today’s home shoppers find it hard to afford a home at current prices and mortgage rates. So a lot of would-be buyers sat out the spring and summer traditional homebuying season.

In the first seven months of 2025, people bought 2.33 million existing homes, according to the National Association of Realtors. Over the same period in 2019, people bought about 3.06 million homes.

At the same time, few homeowners have an opportunity to refinance into a lower rate. One rule of thumb is that a refinance is worthwhile if you can reduce the interest rate by three-quarters of a percentage point or more.

This guideline means that when rates stand at around 6.6%, as they were toward the end of August, it might make sense to refinance if your mortgage has a rate above 7.25%. Hardly anyone is in that boat. Just 2.4% of borrowers had refinanceable mortgages when the 30-year mortgage averaged 6.8% this summer, according to the Urban Institute. Now that rates are a little lower, a few more loans are refinanceable, but not many.

What’s driving rates

Whether you want to buy a house or refinance your mortgage, you wonder why rates aren’t cooperating with your wants and needs. One way to understand is to view the economy as the Federal Reserve does.

The central bank sets interest rates to meet two goals. The first objective is to keep inflation under control, at a rate of around 2%. The second is to “achieve maximum employment.”

Lately the Federal Reserve has been caught in an uncommon bind: Inflation is higher than the Fed wants, while job growth is slowing. Usually the central bank faces one of those problems at a time instead of both.

The central bank has three options for a response.

To prevent widespread unemployment, it could cut interest rates and risk allowing inflation to run away. Or it could raise interest rates to yank inflation lower, at the risk of throwing people out of work. Or it could leave rates alone and look like an indecisive chump while it waits to see which gets worse: inflation or employment.

Investors seem fairly sure that the Fed will choose the first option and cut rates at its September meeting. It’s not a slam-dunk certainty, though.

The Fed doesn’t set mortgage rates; market forces do. The mortgage market responds to the same economic indicators that motivate the Fed: inflation, employment and economic growth. One difference is that the Fed meets roughly every six weeks, while mortgage rates can be updated multiple times a day. That’s why mortgage rates often fall before the Fed cuts rates at a scheduled meeting.

What other forecasters predict

Fannie Mae and the Mortgage Bankers Association predict that rates will fall gradually over the next few months. The organizations diverge in their forecasts after the first quarter of 2026. Fannie Mae predicts that rates will keep falling through the end of 2026, while the MBA says they’ll stabilize at around 6.5% most of next year.

What I predicted for August and what happened

Right before the beginning of August, I wrote, “Mortgage rates will probably stay about the same in August. If they change, they’re more likely to go down than up.”

They didn’t stay about the same. They went down decisively, with the average on the 30-year mortgage dropping from 6.84% in July to 6.66% in August. So I was sorta right.