Well, it happened again. The Fed cut rates and mortgage rates surged higher.
Not the first time and surely won’t be the last.
I warned this could happen, and in fact said it was the most likely outcome before the Fed made its announcement yesterday.
As for why, well, it was the press conference of course, as it always seems to be.
That’s when the Fed Chair has the opportunity to bring additional color to the conversation, which Powell most certainly did.
Mortgage Rates Jump as Fed Cuts, Again
If it feels like déjà vu, it’s because it is. The Fed cut rates, as everyone expected, and mortgage rates went up, as I and others expected.
And the reason I expected it was because there’s precedent. If we look at just the past 15 Fed rate decisions, mortgage rates moved the OPPOSITE way of the Fed 12 times.
During the 16th rate decision this cycle (11 hikes and now 5 cuts), which took place yesterday, the Fed and mortgage rates diverged yet again.
So the odds were in favor of higher mortgage rates simply when looking at the statistics.
If we consider they’ve defied the Fed 12/15 times, that’s an 80% likelihood it’d happen again. And so it did.
As for why it happened, no, it wasn’t because it just happens every time. It was because Jerome Powell essentially threw cold water on the recent bond rally.
A Widely Expected Fed Rate Cut in December Is Not a Guarantee
What arguably drove mortgage rates higher, other than perhaps a simple reversal after a big move lower, were comments from Powell.
After the FOMC announcement, he takes questions from journalists and makes prepared remarks.
One thing that stood out was he said, “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”
Sure, we all know it’s meeting by meeting and things are always in flux, but the “far from it” comment seemed to upset the bond market.
And bond yields, namely the 10-year bond yield that dictates mortgage rates, shot higher.
It leapt back above the key 4% threshold and was last trading around 4.09%. And had climbed above 4.10% briefly as well.
Powell also said, “In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December.”
Of course, part of that was Trump pick Stephen Miran wanting a 50-basis point cut, while Kansas City Fed President Jeffrey Schmid supported no cut at all.
Simply put, the additional 25-bp cut for December is now in question, though if we’re honest, it always was.
For me, this just seems like the typical Powell playing down anything as a guarantee, especially when the market gets ahead of itself. He likes to push back.
But a month from now, we could well see another Fed rate cut, which still has overwhelmingly strong odds of 73%, per CME FedWatch.
Mortgage Rates Needed a Breather
So maybe bonds (and mortgage rates) just needed a breather, given the downward movement lately.
Remember, the 30-year fixed was hovering around 3-year lows, so a bounce higher was kind of expected, at least for me.
If we zoom out, chances are the Fed will keep cutting, especially as more of the Trump-appointed members gain more power.
For me, this was an expected hiccup but doesn’t change the longer-term trajectory of mortgage rates, which continue to move lower over time. And are nearly at sub-6% levels.
In case you missed it, the Fed also announced the end of its Quantitative Tightening (QT), and will now reinvest maturing MBS into short-term Treasuries.
That could lead to even lower rates on adjustable-rate mortgages and push more homeowners into such products.
Lastly, the Fed’s latest cut also lowers the prime rate by the same amount, which means HELOCs just got another 0.25% cheaper. That’s a plus for anyone holding one or thinking about taking one out.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.