The Fed Zigs Mortgage Rates Zag

‍

‍

Last week we all finally received a long-awaited interest rate cut from the Federal Reserve, following nearly nine months of inaction on monetary policy. Granted, with multiple labor market indicators recently pointing to cooling and inflation remaining sticky heading into the conclusion of the central bank's meeting on Wednesday, it was widely expected by Orion’s management and others that the Fed would restart its easing campaign after being on hold since December 2024. What it means for our brokers is something that we are very focused on.

‍

‍

The Fed indeed cut its key policy rate by 25 basis points. Moreover, its updated Summary of Economic Projections, or dot plot, showed a more dovish projection on interest rates for the rest of the year, meaning that overnight rates are expected to keep declining. Fed Chair Jerome Powell's post-decision press conference mentioned that the 25-bps cut was a "risk management" move, sparking concerns that this would not be the start of a long policy easing cycle. Hours after the Federal Reserve cut its benchmark interest rate by 25 basis points on Wednesday, mortgage rates ticked up 9 basis points.

‍

While this trend might seem counterintuitive, the jump in mortgage rates was relatively small and driven by how financial markets are assessing the central bank’s next move. The same thing happened a year ago when the Fed’s jumbo 50 basis-point rate cut in September 2024 pushed 30-year mortgage rates higher.

‍

‍

Financial Market

‍

‍

Many bond traders and economists anticipated the possibility that rates would tick up after the Fed announcement. “Buy the rumor, sell the news.” This has to do with the market’s expectations for policy moving forward.

‍

‍

Orion’s brokers know that the 10-year Treasury yield is a better gauge than overnight fed funds of how mortgage rates will move, and the 10-year yield was trending higher. Investors are focused on where policy and rates will go in the future, not just last week, when they are investing for the longer term.

‍

‍

The Fed’s Open Market Committee also signaled last week that it would cut rates two more times this year. Investors are adjusting to the Fed’s potential rate-cutting plans, so mortgage rates could stay in the current range for the time being. Buyers and sellers looking for their next home can expect continued volatility in mortgage rates over the next few weeks.

‍

‍

But mortgage rates are certainly lower than in recent months. As rates remain relatively lower now, some may be wondering whether this is a good time to buy a home or refinance an existing mortgage. Orion’s brokers and other lenders report that which purchase business is slowing, refinancing activity has increased. Orion has very good products for both: ask one of our AEs!

‍

‍