The Federal Reserve doesn’t set mortgage rates, but its interest rate decisions may influence them.
The last week for the first time in four years, boosting borrower hopes that the cut trickles down into new . The Fed’s action ends 14 months of rate pauses that, along with , and other factors, have prolonged elevated borrowing costs.
Although the Fed doesn’t directly set rates for home loans, . Mortgage rates often — but not always— tend to fluctuate in line with the federal funds rate. Sometimes, mortgage rates react before anticipated decisions. For example, mortgage rates in July and August, perhaps in anticipation of the expected Federal rate cut.
Here’s what you need to know about how the Federal Reserve influences mortgage rates.
Start comparing your top mortgage loan options online now.How closely do mortgage interest rates tend to follow the Fed’s rate decisions?
Mortgage rates often trend in the same direction as the federal funds rate. As Robert R. Johnson, a professor at Heider College of Business, Creighton University, notes, “Directionally, mortgage rates follow Fed changes very closely. In other words, you are highly unlikely to see mortgage rates trend upward when the Fed is easing and are highly unlikely to see mortgage rates trend downward when the Fed is tightening. I would argue that Federal Reserve monetary policy is the single most important factor that influences mortgage rates.”Mortgage rates are influenced by several factors
Federal Reserve decisions may impact mortgage rates, but they’re also affected by inflation, the bond market, the unemployment rate and the broader economy.
