Federal Reserve Holds Rates Steady January 28, 2026: What It Means for Mortgage Rates and Credit

Federal Reserve Pauses Rate Cuts in 2026

Greg Rutolo | NMLS #34860 | Loan Factory

On January 28, 2026, the Federal Open Market Committee (FOMC) voted 10-2 to keep the federal funds rate at 3.50%-3.75%, marking the first rate hold since July 2025. This decision paused a series of three consecutive quarter-point rate cuts implemented in September, October, and December 2025.

Two governors—Stephen Miran and Christopher Waller—dissented, preferring an extra 25-basis-point cut. However, the majority agreed that economic conditions warranted a pause in the Fed’s cutting cycle.

Why Did the Fed Hold Rates Steady?

Fed Chair Jerome Powell explained the rationale in his press conference after the announcement. The committee cited three key factors:

Economic Growth is Solid

Powell emphasized that the economy is “expanding at a solid pace” and started 2026 “on a firm footing.” Third-quarter GDP growth reached 4.4% annually, significantly exceeding economist forecasts. This strength in economic activity reduced the urgency for additional rate cuts.

Labor Market Stabilizing

While job gains stay “low,” the Fed noted that the unemployment rate has shown “signs of stabilization.” Labor market concerns have eased. This change was a major driver of the three late-2025 cuts. It suggests less need for further insurance against economic weakness.

Inflation Remains Elevated

The Fed’s statement acknowledged that inflation “remains somewhat elevated.” Consumer prices rose at a 2.7% annual pace in December, well above the Fed’s 2% target. Powell expects tariff-related goods price inflation to peak and decline throughout 2026, assuming no new major tariffs are implemented.

Current Rate Level is “Not Restrictive”

Powell made a critical statement: the Fed’s policy rate at 3.5%-3.75% is not restrictive given current economic conditions. This indicates the Fed is comfortable with current borrowing costs and has no immediate plans to ease further.

How the Fed Rate Hold Impacts Mortgage Rates

The Mortgage Rate Disconnect

Here’s what every home buyer and homeowner should understand: mortgage rates don’t move directly with the federal funds rate.

This is the most important takeaway for anyone shopping for a home or refinancing. When the Fed raised rates throughout 2024 and early 2025, mortgage rates actually stayed elevated. Even after the Fed cut 100 basis points from July through December 2025, the rates remained high. This disconnect occurs because:

Mortgage rates follow the 10-year Treasury yield, not the federal funds rate
Investor sentiment, inflation expectations, and mortgage-backed securities supply and demand are equally important drivers
As one mortgage industry expert noted: “The Fed is the weather, not the thermostat.” The Fed reflects economic conditions rather than controlling them directly.

Mortgage rates have dipped near 15-month lows. This followed Trump’s announcement of a $200 billion mortgage-backed securities purchase program by Fannie Mae and Freddie Mac. The announcement increased demand for mortgage securities and pushed rates lower.

2026 Mortgage Rate Forecast

Industry experts project modest rate relief ahead, though timing remains uncertain:

Market consensus suggests rates could fluctuate between 5.7% (low) and 6.5% (high) during the year
Fannie Mae predicts mortgage rates will drift toward 6% for most of 2026, a slight decline from current levels
Mortgage Bankers Association forecasts rates hovering around 6.1% throughout 2026
Goldman Sachs anticipates potential easing later in 2026 if inflation moderates, predicting two extra Fed rate cuts

Should You Lock in Your Rate Now or Wait?

This is the question every borrower is asking. Industry experts recommend:

For Homebuyers: If you have a contract in hand and can afford the monthly payment, it’s time to take action. Lock in your rate now if the property fits your needs. Trying to time the market for a perfect rate often backfires.

Considering a refinance: Waiting may make sense if the Fed cuts later in 2026, but there’s no guarantee of timing or size of cuts. Mortgage rates are near 15-month lows, refinancing is already be attractive depending on your situation.

Impact on Credit Availability and Lending Standards

The Fed’s rate hold does not signal a tightening of credit conditions. Instead, it maintains the status quo established over the past six months. Here’s what you need to know about borrowing power in 2026.

Credit Remains Accessible

Banks are not tightening underwriting standards in response to today’s Fed hold. Credit criteria stay flexible:

Minimum credit score: 620 for conventional loans, 580 for FHA loans (unchanged)
Debt-to-income ratio: Up to 45% for conventional loans, sometimes 50% with strong compensating factors
Down payment: As low as 3% for conventional loans, 3.5% for FHA loans

This shows stable credit availability—neither loosening further nor tightening materially.

HELOC Rates and ARM Mortgages Freeze

Home Equity Lines of Credit (HELOCs) and adjustable-rate mortgages (ARMs) are directly tied to the federal funds rate. This is through the prime rate, unlike fixed-rate mortgages. The Fed held rates steady. As a result, HELOC rates and ARM rates remain unchanged at current levels. This will continue until the Fed’s next move, likely not until March 2026.

Credit Card Rates: Good News from 2025 Cuts

The most direct advantage appears in credit card rates. After the three Fed cuts in late 2025, average credit card APRs fell to 23.79% in January 2026—the lowest level in nearly two years. The Fed’s rate hold means these rates won’t decline further until the next cut, but they also won’t spike upward.

Two positive developments for 2026 credit availability:

Flexible DTI Standards: The CFPB has removed the strict 43% DTI cap. This change allows lenders to approve higher-DTI borrowers. Approval is possible if other compensating factors are strong.
Alternative Credit Scoring: New lender guidance permits other credit score models like VantageScore 4.0, which consider rent, utility, and telecom payments—expanding access for borrowers with thin credit files.

The Real Constraint: Affordability, Not Credit

While credit availability remains consistent, the real challenge for borrowers is affordability, not lending standards. The combination of elevated home prices, rates still above 5.9%, and slower income growth limits what buyers can afford—even if banks are willing to lend.

What Happens Next? The March FOMC Meeting

The Fed’s next interest rate decision is scheduled for March 17-18, 2026. Markets currently expect:

Two total cuts in 2026 (based on CME FedWatch projections)
Earliest cut possibility: June 2026
Data-dependent approach: The Fed will assess inflation, employment, and economic growth trends before deciding

Powell emphasized that the Fed is “well-positioned” after the three late-2025 cuts. It will make decisions “meeting-by-meeting based on incoming data.” There is no predetermined path.

Key Takeaways for Borrowers in 2026

Mortgage rates won’t change materially unless there’s a major economic shift or surprise inflation reading. The Fed’s hold was anticipated, so rates have already priced it in.
Current mortgage rates near 5.9%-6.2% APR represent reasonable opportunities. Rates may fall if the Fed cuts later in 2026, but waiting comes with risk—rates could also rise.
Credit availability remains stable. If you qualify under current standards, banks will lend. The constraint is monthly payment affordability, not lending willingness.
HELOC and ARM rates are frozen at current levels until the next Fed move in March or later.
Credit card rates won’t improve without additional Fed cuts, but they won’t worsen either at current levels.
Refinancing makes sense if you can break even within your expected holding period and rates drop at least 0.5%-0.75% from where you currently sit.

Final Thoughts

The Federal Reserve’s January 28, 2026 decision to hold rates reflects confidence in the U.S. economic outlook. Solid growth is evident. The labor market is stabilizing. There is hope that inflation will decline. These factors have convinced the majority of policymakers that further cuts aren’t needed soon.

For borrowers, this translates to stable conditions. Mortgage rates are hovering around 6%. Credit is accessible for qualified borrowers. No dramatic shifts are expected until economic data shifts dramatically.

If you’re considering a home purchase or refinance, the key question isn’t whether rates will be lower in six months. They might be lower, or they might not. The question is whether today’s rates make financial sense for you right now. Consider if they combine with a property you want to buy or if financing will improve your situation.

Attempting to time a perfect rate is a loser’s game. What matters is making a decision that aligns with your financial goals, timeline, and risk tolerance.

Have questions about how today’s Fed decision impacts your mortgage strategy? Reach out to discuss your specific situation.

Greg Rutolo | Loan Factory