Why Mortgage Rates Increased After The FED Lowered Rates

Just over three weeks ago, the Federal Reserve (FED) cut interest rates by .50%. However, since that time, mortgage rates have notched up by .50%. So why did rates increase after the FED decreased rates?

​A major reason for the uptick in rates was due to the September jobs report, which rocked the financial markets. Also, FED meeting minutes were released showing several FED officials wanted to cut rates by just .25% rather than .50%, which gives a peek into the future of rate cuts. Remember, markets are forward-looking, so these future projections get priced in ahead of time.
 
Debt Remains a Problem
Purchases for our debt were subpar last week, which also weighed on bonds and added to the upward pressure on interest rates. If buying demand continues to be weak on our debt, it will put a lid on rate improvements.
 
Oil Volatility
The price of oil has moved sharply higher in recent weeks, which puts added stress on interest rates. If oil continues to move higher, so will rates.
 
Consumer Inflation
The Consumer Price Index (CPI) was reported as still being above the FED’s desired target, so this also makes the FED want to keep rates higher in order to lower inflation.
 
So while the news reports a .50% cut in rates, you can see this didn’t directly translate into a .50% drop in mortgage rates. In fact, the opposite occurred. It’s important to note that FED rate moves affect the overnight lending rate; they don’t directly affect longer-term rates like home loans. There are many factors that affect rates in our macro-economy. Let’s hope things change and we can get back to the downswing in rates!