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The Fed Does NOT Control Interest Rates! Follow the Data Guys!


The Fed raised “rates” last year at the fastest pace in history!

There were 7 “rate” increases in total:

  1. 0.25% in March
  2. 0.50% in May
  3. 0.75% in June
  4. 0.75% in July
  5. 0.75% in September
  6. 0.75% in November
  7. 0.50% in December

But – Despite Increases Totaling 1.25% Over November and December, 30-Year Mortgage Rates Have Now Fallen Almost 1.5% Since October.

Please see the chart at the bottom of the blog showing average 30-year rates – as it clearly shows mortgage interest trends and how they do not correlate with increases in the Fed Funds Rate.

You can see that the same thing happened in July; 30-year mortgage rates fell sharply after the large 0.75% increase in the Fed Funds Rate.

Rates fell recently not only in the face of two large increases in the Fed Funds Rate but also in the face of a lot of Fed bluster about more rate increases to come.

Fed Controls the Short End of the Yield Curve; Not the Long End

What I am again reminding readers of is that the Fed primarily influences the short end of the yield curve, as it only controls the “Fed Funds Rate” or the overnight rate that banks charge each other to meet reserve requirements.

Long-term rates like the 10 Year Treasury and 30-year fixed-rate mortgages often move independently of the Fed, no matter what the Fed says or does.

The 10-Year Treasury, for example, dropped as low as 3.37% today after hitting a high of 4.25% in October. And, as I mentioned above, mortgage rates have dropped almost 1.5% since October.

This is despite ALL OF THE PREDICTIONS we saw and heard last year about mortgage rates hitting 8% to 10% this year.

ALL of those people were listening to the Fed and NOT listening to people like Barry Habib and Jeff Snider who follow the data instead of the bluster.

Mortgage rates respond to other factors, such as inflation and economic outlooks.

And, if inflation is coming down and the economy seems to be weakening, long-term rates will usually fall – irrespective of the Fed’s bluster.

That is in fact what we saw happen today, as the Producer Price Index came out showing that inflation continues to wane, and as retail sales numbers came out weaker than expected, indicating that the economy continues to soften.

We might all be wise to listen to the data guys and not to the Fed watchers.

And, once again (for about the 100th time 😊), the data guys, who have been correct all along, are predicting more rate decreases to come.

Barry Habib in particular is now telling us that May 10th will be the “big day” – when we see a major drop in rates because of the way inflation data and year-over-year comparisons are shaking out.

This is just one more blog you can share with your “know-it-all” Uncle Fred who still insists that the Fed controls the universe (and don’t even get me started about Aunt Marge).

Average 30-Year Mortgage Rates over the Last 12 Months

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