The Federal Reserve lowered the benchmark interest rate last Wednesday (October 29th), but mortgage rates responded in the opposite way on Thursday, with data showing a 20 basis point increase.
According to the latest data provided by Mortgage News Daily, the average rate for 30-year fixed-rate mortgages in the United States has risen by 20 basis points, or 0.2%, since Federal Reserve Chairman Jerome Powell announced the rate cut and held a press conference on Wednesday.
Industry analysts believe this could be related to Powell’s statements on Wednesday. Despite the Federal Reserve policymakers voting to lower the benchmark interest rate by 0.25 percentage points that day, Powell told reporters that another rate cut in December is “by no means” set in stone and admitted to significant divisions within the 12-member rate-setting committee.
Bond markets immediately reacted strongly to these remarks, with the key 10-year U.S. Treasury bond yield quickly rising above 4% during Powell’s speech, which is a leading indicator of mortgage rate increases.
While Freddie Mac, a housing mortgage finance agency, reported a slight decrease to 6.17% in the weekly average mortgage rates on Thursday, daily tracking data shows that mortgage rates have rapidly climbed back up to over 6.3% since Powell’s speech.
On Tuesday, the average rate for 30-year fixed-rate mortgages had dropped to 6.13%, matching the recent low point on September 16th (the day before the Fed’s last rate cut announcement) and was the lowest level in a year.
However, on Wednesday, following the Federal Reserve’s rate cut announcement and press conference, the rate surged by 14 basis points. On Thursday, it increased by another 6 basis points to 6.33%, a full 20 basis points higher than Tuesday’s data.
This situation occurred during the previous rate cut by the Federal Reserve as well. The reason is quite simple: the bond market had already priced in the rate cut but did not take well to Powell’s remarks. Mortgage rates are linked to the 10-year Treasury bond yield, and although the Fed does not directly control mortgage rates, its actions in interest rate policies will directly affect the 10-year Treasury bond yield, thus indirectly impacting the level of mortgage rates.
During the Fed’s rate cut in September, the average rate for 30-year fixed-rate mortgages was even higher at 6.37%.
Matthew Graham, Chief Operating Officer of Mortgage News Daily, noted in a client communication that the market was expecting three rate cuts from the Fed in 2025, which is overly optimistic considering the Fed’s stance. The market is almost certain that there will be another rate cut in December, but the Fed is not as definite, as Powell emphasized on Wednesday. As a result, yields moderately retreated to a level more in line with the expectation of a likely rate cut in December, but not a done deal.
(Reference: CNBC)