WTF, WHY DID RATES GO UP AFTER THE FEDS JUST CUT .50 POINTS

Unlocking the mystery of mortgage rates: Learn why Fed rate cuts don’t always lead to lower borrowing costs and how to prepare for the next opportunity.

Let me guess, you are like tons of other people that did not move fast enough to lock in, thought rates would keep dropping, or were not even prepared for refinance at all, and now you feel like you missed out on that opportunity to refinance or purchase with a lower rate.

Good news! You are not alone, and there will be another opportunity, of course, to lock in a lower rate on a refinance or a lower rate to purchase a home. I was posting daily and weekly up to the rate cut, saying the best time to lock in would be prior to the rate cut, and I thought rates would go up after the cut. I explain more below.

FYI, at the end of this blog, I will explain how to get prepared so you don’t miss out the next time rates drop, what to look for, and how to take advantage of the rate drop.

Why Did Interest Rates Go Up After the Fed Cut Rates?

If you’ve been paying attention to the mortgage market lately, you might be scratching your head. Didn’t the Fed cut rates recently? So why are mortgage rates still high—and in some cases, even going up? As a mortgage broker with 20 years of experience, I can tell you this situation is more common than people realize. The relationship between Fed rate cuts and mortgage rates isn’t always as straightforward as it seems.

Let’s break down why mortgage rates have gone up after the Fed made cuts and why that happens more often than you’d think.

Understanding the Fed’s Rate Cuts

First, it’s important to understand what the Federal Reserve’s rate cut affects. The Fed controls what’s called the federal funds rate, which is the rate banks use to lend money to each other overnight. This short-term rate is critical for the broader economy because it influences how much it costs to borrow money for things like credit cards, personal loans, HELOCs, and some business loans.

However, the federal funds rate is not directly tied to mortgage rates. When the Fed cuts rates, it’s mainly aimed at stimulating the economy by encouraging borrowing and spending. In theory, this should lead to lower borrowing costs across the board—but the mortgage market marches to a slightly different beat.

Why Mortgage Rates Sometimes Rise After Fed Cut

Mortgage rates are largely determined by long-term factors like the bond market, inflation expectations, and overall economic health, not just short-term interest rate changes. Here’s why we sometimes see mortgage rates rise even when the Fed cuts rates:

Data Dependency: A Key Factor

One of the reasons mortgage rates remain high, even after the Fed cuts rates, is the data dependency of rate decisions. Mortgage lenders and investors aren’t just looking at what the Fed does today; they’re also analyzing a wide array of economic indicators, such as:

• Inflation reports: If inflation is higher than expected, mortgage rates can increase, even if the Fed is cutting its own rates.
• Employment data: A strong labor market with rising wages can signal future inflation, causing lenders to raise rates.
• Consumer spending: Higher spending levels can indicate inflationary pressures, which can push mortgage rates up.

In essence, mortgage rates are driven by expectations of future economic performance and inflation. If the data points to sustained inflation or economic uncertainty, mortgage rates can rise, even when the Fed is actively lowering rates in the short term.

Final Thoughts

It’s natural to assume that when the Fed cuts rates, mortgage rates will follow, but as we’ve discussed, that’s not always the case. The mortgage market is driven by a range of complex factors, including inflation expectations, economic data, and investor sentiment. While the Fed’s rate cuts are an important piece of the puzzle, they don’t dictate mortgage rates directly.

The key takeaway here is that mortgage rates are influenced by long-term expectations, not just short-term changes. If you’re navigating the market today, focus on what makes sense for your financial goals rather than waiting for rates to drop to drop. Talk to a mortgage expert. BOOK a call with me and let’s discuss your scenario and options.

If you are not following me on social media, you should. You will get daily updates on the market, rates, and how this all impacts real estate. You can stay informed that way as well.