Why Mortgage Rates Can Actually Rise After The Fed Cuts

My friend and ace mortgage rate analyst Matt Graham has a smart but counterintuitive rate reminder for all mortgage shoppers and loan officers: mortgage rates often rise after Fed cuts.

Why? Because mortgage rates fall when bonds rally on current or anticipated good news. So as bond traders have anticipated the good news of Fed cuts beginning September 18, they’ve bought mortgage bonds.

This buying pushes bond prices up, and because bond prices and yields move inversely, it pulls rates down.

The 2024 peak according to Mortgage News Daily (Matt’s shop), was 7.5% on April 25, and mortgage rates are down 1.25% to 6.25% to begin the week of September 10.

We’re just 10 days away from the FOMC meeting where the Fed is expected to cut its overnight bank-to-bank lending rate — the Fed Funds Rate — by at least 25 basis points.

As you can see from Matt’s chart above, mortgage rates can rise right after Fed cuts. This happens as mortgage traders ease off their optimism — selling bonds, pushing rates up.

It doesn’t always happen, but the data plainly shows it’s a trend (hit link below for more charts from Matt).

And as a mortgage banker dating back to 2003, I can tell you it’s very painful when you get this wrong for clients.

On a positive note, there’s two more 2024 Fed meetings after September 18 — on November 7 and December 18 — when the Fed may continue cutting, and this may fuel mortgage bond rallies that hold rates lower.

If it plays out with sequential Fed cuts, the overall mortgage rate trend can still be down in 4Q24 and 1Q25.

But just know the ride will have some bumps.

Below is Matt’s link for more on this topic, and reach out with any questions.

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Reference:

– Why You Might Regret Waiting For Better Rates After The Fed Cuts