It is hard to understand how it can be, if the Feds make a rate cut yet mortgage rates go up! Below is an email that was sent to me by a lender at Waterstone Mortgage. I hope this can help you understand this.
Banks don’t always act the way you expect them to, and this week is an example. The Federal Reserve cut short-term interest rates on Dec. 18. So what did mortgage rates do? They went up.
If You’re Struggling to Understand This Week’s Mortgage Rate Spike, THIS is For You:
A lot of time Lenders are explaining how the bond market reacts when Fed rate cuts are highly expected—like the one that happened this week. On Tuesday, we explained it this way:
“The market already knows the Fed is cutting rates tomorrow, and that expectation is fully reflected in the mortgage rates available today.”
This comment focused solely on the Fed Funds rate decision. We also said:
“If rates rise or fall tomorrow, it would be due to other parts of the Fed announcement, like their quarterly rate outlook (the dot plot) or the press conference with Fed Chair Powell 30 minutes after the rate announcement.”
And that’s exactly what happened—those “other factors” caused rates to jump yesterday. If you want the full breakdown, you can check out our detailed coverage.
The key takeaway from all our commentary is that mortgage rates don’t automatically follow the Fed Funds Rate. This is especially important when people wrongly assume a Fed rate cut will lead to lower mortgage rates. In fact, mortgage rates often rise right after a Fed rate cut.
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Unlike the Fed Funds Rate, it’s impossible to predict how the market will react to changes in the Fed’s messaging or their dot plot without seeing the details first. Yesterday, the changes in the 2025 dot plot and Powell’s hawkish tone were bigger surprises than expected, which pushed rates higher. These factors always have the potential to shake up the market on Fed days, and that won’t change. What does vary is the size of the impact, which tends to be smaller when inflation and growth are stable, and the Fed Funds Rate hasn’t changed in a while. Today, rates are mostly the same as yesterday. The average lender is still offering around 7.125% for a top-tier conventional 30-year fixed loan. Broader surveys and indices will start to reflect this move next week, though not completely.
If you are thinking about should you buy or sell, give me a call and we can go over what is right for you.
