Mortgage executive reminds brokers that the Fed has more tools in the toolbox besides rate cuts
If you follow mortgage news on LinkedIn, you couldn’t scroll more than one or two posts on Thursday before an influencer told you that mortgage rates were likely to inch back up after the Fed cut rates on Wednesday.
Everyone knows that mortgage rates don’t move in a one-to-one ratio with Fed rates. But what you really need to know is what needs to happen so that mortgage rates will continue to trend downward along with future Fed cuts.
Pavan Agarwal (pictured top), CEO of Sun West Mortgage Company, has the answer to that question, and it revolves around the concept of quantitative easing (QE): the process by which the Fed stimulates the economy by buying government bonds and mortgage-backed securities on the open market.
Government bonds play a significant role because mortgage rates move very closely with the 10-year treasury. If the 10-year goes down, mortgage rates tend to follow. Over the last couple of days, since the Fed announcement, the 10-year has moved up slightly, and rates have followed.
“I think the Fed announcing rate cuts could actually cause the 10-year to go higher because of increased inflation fears, unless the Fed increases QE as well,” Agarwal told Mortgage Professional America. “The Fed is doing QE right now, although most people don't realize they are. They've been doing QE for months.”
Will lower rates last?
The declining mortgage rate leading up to the Fed announcement was welcome news for mortgage brokers who have been waiting for something positive in a tumultuous 2025. Agarwal said inflation could be a big factor in whether those rates will hang around going into 2026.
“I think the industry right now is feeling pretty happy because there’s been a pickup in the rates,” he said. “I'm not sure whether it's going to last. We'll see how inflation clocks in the next month or two, and whether inflation can remain low. But it's been mixed results with the PPI and CPI numbers. But the good news is that oil prices have been kept at bay, and that’s a major driver for inflation.”
If inflation stays at a reasonable level, Agarwal thinks an increase to the buyback program could be the right formula for lower mortgage rates. Without that increase, he fears the 10-year Treasury could rise, causing rates to increase as well.
“If they continue to cut rates and they don't increase their buyback program, we could see the 10-year start spiking, which obviously would be bad for the industry,” he said. “However, I think because the 10-year has been rallying ever since they made the announcements, and then with the lower job numbers, I think the traders are assuming that the Fed will continue and increase QE as they lower rates.
“It’s a complete crap shoot as to what they actually decide to do. No one knows. They could just cut rates and not increase QE. That could cause the 10-year to go up, which would be bad for the industry. So we just don't know what they're going to do.”
Don’t wait to act
Agarwal said because there are so many unknowns right now in the economy, it may not pay off for brokers to tell customers to wait for potentially lower rates.
“I see a lot of loan officers will say, ‘Just wait. The Fed is going to cut rates, and rates are going to get lower,’” he said. “’So let’s wait on marketing to our customers on lower interest rates and refinances.’ I think that's a bad idea, because it's 50/50: 50% chance rates go down, or 50% chance rates go up.”
Fed cuts have stirred hopes for lower mortgage rates, but Melissa Cohn of William Raveis Mortgage warns that “too much noise” makes forecasts uncertain. From tariffs to politics, unexpected shifts keep the outlook unclear.
— Mortgage Professional America Magazine (@MPAMagazineUS) September 18, 2025
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Rather than waiting and potentially losing out on those refinances, Agarwal said, if you have customers who are ready to move forward with a refinance, you should push ahead instead of encouraging them to wait.
“My advice is, if you have customers that are in the money, then refinance them,” Agarwal said. “If there's a real benefit to them right now, in today's rate environment, and this is worthwhile, then refinance them. Don't tell them not to refinance, because it might get lower, because it could. But it might also get higher.”
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