Rates have done nothing but go up since the Fed cut the Fed Funds Rate last Wednesday.
We saw another spike in rates this morning as the bond market reacted to much stronger-than-expected economic data (GDP/growth, employment, and durable goods reports).
I love this simply because it so nicely corroborates the points I make in this blog repeatedly:
- The Fed does not control long-term rates (the bond market does).
- The bond market responds to economic growth and inflation expectations.
And today, it was “economic growth” expectations that pushed up rates.
Do Fed Rate Cuts Actually Cause Mortgage Rates to Rise?
The short answer is no. But, it sure seems like it, given what we’ve seen play out over and over (particularly last year when mortgage rates rose 1% after the Fed cut the Fed Funds Rate by 1%).
Remember that the Fed often telegraphs rate cuts prior to the cuts, so the markets react ahead of time. So, rates can go either direction after the cuts.
A cut in the Fed Funds Rate could foster higher mortgage rates – if the markets perceive the cuts as “inflationary” (like we saw last year). But that is probably the only exception.
The main reason rates went up last year was a very strong jobs report.
What Could Make Rates Fall Again?
While any cool inflation or negative economic report could bring down rates, two major incidents seem most likely.
One is a stock market correction, which seems more likely than ever, given the “AI bubble” talk as well as the sky-high valuation data.
The other is a weak labor report, given the overall weakness in the labor market (despite today’s reports), according to numerous analysts on X (like Danielle DiMartino Booth, for example).
