The Fed doesn't directly set mortgage rates, but it influences them by making changes to the federal funds rate, the interest rate that banks charge one another for short-term loans. The Fed's decisions alter the price of credit, which has a domino effect on mortgage rates and the broader housing market over the long term.

The Fed's December rate decision reflects growing confidence in the economy's trajectory and the continued moderation of inflation pressures, despite an uptick in the inflation rate over the last few months.