Hey folks, hope everyone is doing well and enjoying the shift into fall. I wanted to share a quick story about the pending Fed interest rate cuts. There’s a lot of buzz about this, and it’s interesting because I made almost the same video a year ago using this same graph. The Fed funds rate, which the Fed actually controls, doesn’t directly impact long-term mortgage rates as much as people think. Instead, it drives the prime interest rate, which affects things like credit cards and equity lines. Looking back, before COVID the Fed funds rate was near zero, then it rose sharply in 2022 and leveled off.
In September 2024, the Fed cut rates by half a percent, but mortgage rates which were at 6.08% then actually rose to 6.79% within six weeks. Later, when the Fed made two more quarter-point cuts in December and January, mortgage rates stayed stubbornly high, hovering around 6.8% to 7%. Even after those cuts, by February they were still at 6.89%. Recently, we’ve seen only a slight improvement of about a quarter percent. The key takeaway is that Fed rate cuts don’t guarantee lower mortgage rates. In fact, the last few cuts had the opposite effect. While I do think we’ll see some relief ahead, it will likely come more from factors like spreads and broader economic activity rather than the Fed’s actions alone. Importantly, mortgage rates have already priced in the expectation of Fed cuts, so waiting for an official announcement isn’t always necessary and sometimes rates even tick upward right after. Hopefully this helps give you some perspective. As always, if you have questions, feel free to reach out.
