Why Did Mortgage Rates Go Down Yesterday When the Fed Raised their Rate?

Many people hear on the news that the Fed is going to “raise interest rates” and they think that means mortgage rates. But the two are not connected. The Fed Funds Rate is the rate at which the Federal Government lends out money, but mortgage rates follow a market…the bond market specifically. The bond investors are listening intently to what the Fed has to say, and Jerome Powell’s comments can influence what bond investors do..but there is no direct tie.

For example, prior to Silicon Valley Bank (SVB) failing a couple of weeks ago, the bond market was expecting (i.e. pricing into mortgage rates) the Fed to raise their rate by .5% in last week’s meeting. But when SVB failed and created concerns on an economic scale, the bond investors thought that would force the Fed to raise their rate by less than .5% so mortgage rates dropped the next business day. So just the expectation of what the Fed will do and how that affects the overall economy is what really moves mortgage rates!

So because there was still a chance the Fed could raise their rate .5% before the Fed meeting, the bond market wasn’t sure what to expect. When they only raised their rate .25% instead of .5%, that was seen as a good thing so the bond market got better and mortgage rates went down.

I hope this helps you understand how rates work a little better, but feel free to call me anytime to discuss or ask any mortgage questions!