Fed Rate Cuts Don't Mean Mortgage Rate Cuts

We were asked a variance of the below question over and over yesterday:

“I heard that the Fed cut the rate by 1/2 percent; can I lower my mortgage rate by 1/2 percent?”

We would respond by explaining that the “Fed Funds Rate” often does not correlate to mortgage rates for a variety of reasons.

I touch on this often b/c the confusion surfaces every time the Fed cuts rates.

When the Fed makes a rate cut, it is to the short-term “Fed Funds Rate” which does not always impact long-term mortgage rates in the way that most consumers might expect.

I blogged about this as recently as August, but here is a brief summary of why mortgage rates not only don’t always correlate to Fed rate cuts, but often go up after the Fed cuts rates.

  1. The “markets” anticipated the rate cut and already adjusted for it. Traders and investors analyze polls, data and Fed comments to very effectively anticipate changes and the Fed Funds rate and the markets often adjust long before the rate cuts take place. As a result, very little happens when the Fed Funds rate is actually cut (or increased).
  2. Short-term rates don’t always affect long-term rates. The Fed is only reducing the Fed Funds Rate, or the rate banks charge each other for overnight loans. This is a very short-term rate, and short-term rates don’t always affect long-term (mortgage) rates.
  3. Many factors influence long-term rates besides the Fed, and below are just a few. These factors include economic data; inflation signals; geopolitical crises; and the demand for mortgage bonds.


Rates were about the same yesterday after the rate cut as they were the day before.

This is both b/c the markets anticipated the rate cut and b/c it is economic concerns (coronavirus and others) that are moving long-term rates.

The Feds’ rate cut is actually getting a lot of criticism b/c it will do so little to stimulate economic activity (travel, major events, supply chain issues) offset by the coronavirus concerns.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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