Mortgage Rates Defy Expectations, Rise Despite Fed’s Rate Cut
The Federal Reserve’s recent decision to cut interest rates for the third time this year has left many wondering why mortgage rates have actually increased. Despite the Fed’s move, the 30-year fixed rate mortgage has surged to 6.72%, up from 6.60% just a week prior.
Understanding the Disconnect
To make sense of this seemingly contradictory trend, it’s essential to recognize that mortgage rates are closely tied to Treasury yields, and only marginally influenced by the federal funds rate. This means that the Fed’s rate cut has a limited impact on mortgage rates.
Market Volatility
Experts point to the bond market’s reaction to Donald Trump’s election win in November as a key factor in the recent mortgage rate hike. Additionally, the Fed’s indication that fewer rate cuts are likely in 2025 may have sparked market volatility, leading to increased mortgage rates.
The Fed’s Message
According to Jessica Lautz, deputy chief economist at the National Association of Realtors, “The market is just responding to the tone of the Fed’s message.” The Fed’s “dot plot” suggests fewer rate cuts in 2025, which may have contributed to the current rate hike.
Inflationary Pressures
Melissa Cohn, regional vice president of William Raveis Mortgage in New York, notes that the Fed’s projected benchmark lending rate for 2025, combined with Trump’s desired policies on tariffs, immigration, and tax cuts, may have spooked the bond market, leading to increased mortgage rates.
Anticipating the Fed’s Next Move
Jacob Channel, a senior economist at LendingTree, explains that mortgage rates often move in anticipation of the Fed’s future actions. This means that mortgage rates may not react dramatically to the Fed’s actual meeting, but rather adjust in response to expectations of future rate cuts or hikes.
As the market continues to navigate these complex factors, one thing is clear: mortgage rates are on the rise, and borrowers would do well to stay informed and adapt to the changing landscape.
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