Federal Reserve statement explained – January 2026

In its first meeting of 2026, The Federal Open Market Committee the Federal Reserve held the target range for the federal funds rate steady at 3.5% - 3.75%. The decision follows three consecutive rate cuts in late 2025, each by a quarter point.

As of the January 28 announcement, the average mortgage rate is 6.5% for a 30-year fixed-rate mortgage and 5.75% for a 15-year fixed-rate mortgage. Economists had expected the Fed to hold rates steady amid disappointing jobs numbers and lingering inflation.

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 to increase consumer spending and demand for goods, which can increase employment.

However, if the Fed makes it too easy to borrow, it can send prices soaring and speed up inflation. The Fed typically increases the federal funds rate as a way to battle inflation and tame an overheated economy.

According to the Bureau of Labor Statistics, the unemployment rate showed little change in December 2025, sitting at 4.4%. Meanwhile, the U.S. economy added only 50,000 jobs, fewer than expected and an indication of a weakening labor market. While employment in food service, health care, and social assistance trended up, retail lost jobs.

The inflation rate remained at 2.7% - still higher than the Fed’s annual target rate of 2%. This complicates the Fed’s job of balancing prices and the jobs market. Holding the federal funds rate steady can help keep inflation in check, but it could also hold back the jobs market.

What this means for home buyers

When interest rates spiked in 2022 and 2023, many would-be home buyers got priced out of the market. If you’ve been tracking interest rates because you’re looking to buy a home soon, it’s important to know that the relationship between mortgage rates and the federal funds right is not as direct as one might expect.

While changes to the federal fund rate have a more immediate impact on short-term loans and bonds, 30- and 15-year mortgage rates are more affected by Treasury yields and the economy. When the 10-year Treasury note changes, mortgage rates tend to follow suit. This helps explain why the current average mortgage rate is sitting 3 percentage points higher than the current federal funds rate.

That said, the federal funds rate does impact the 10-year Treasury note rate, which is why mortgage rates do tend to trend with short-term loan rates. A hold on the federal funds rate is an indicator that mortgage rates aren’t expected to drop dramatically any time soon.

This can come as frustrating news to buyers who have been priced out of the market and can’t afford a monthly payment with current rates. If you can afford a monthly mortgage payment but have been trying to time the market to get the lowest rate possible, you may be better off focusing on affordability instead of the rate. It may not be worth it to focus solely on the rate and give up the opportunity to buy sooner and build equity.

If you’re ready to get started, apply for a home loan today with Rocket Mortgage.

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