I love receiving reader questions. Here is one of the most recent that I received:
There is talk of a large Fed rate cut. However, despite expectations of lower interest rates, mortgage rates aren’t going down. Why is this?
An excellent question, and one that befuddles many. The answer lies in the fact that the Fed rate cut that you see is to a different type of interest rate than what rules mortgage rates.
The Fed rate cut that we are likely to see on March 18 (or before, if rumors of an emergency Fed rate cut prove true) affects short term interest rates. Mortgage rates are long-term rates. They are tied more to 10-year Treasury notes. These are different rates, driven by different things.
When a Fed rate cut is made, it tends to encourage inflation. This in turn boost 10-year Treasury notes and — as Behind the Mortgage points out — mortgage rates.
While a Fed rate will likely get you a better interest rate on your credit card, it probably won’t do a whole lot in terms of improving mortgage rates.