For more proof that the Fed does not control mortgage rates, consider this:

In the immediate aftermath of the Fed's decision to lower the Fed Funds Rate by 0.50%, mortgage rates improved by about 0.25% on average.

But, in the two days since, mortgage rates have not only given back those gains, but have climbed to their highest levels of the month.

This is because post-rate cut, the U.S. dollar is trading at all-time lows against the Euro and other currencies.  Therefore, buyers of dollar-denominated securities such as mortgage bonds are getting less return for their investment.

When an investment loses its return, buyers tend to become sellers and that pushes the supply-and-demand balance to the supply side. 

Additional supply of mortgage bonds drives down prices and increase mortgage rates.

It can be a complicated web, of course, but consider it to be additional evidence that the Fed Funds Rate and mortgage rates are unrelated.

 
This post has been included in Maryland Information

8 Comments on Want More Proof that the Fed Doesn't Control Mortgage Rates?

SEP
21
2007
123,183 Points Outside Blog
Great post!  Lately it seems we have a small army of armchair economic experts posting on AR who are calling for Alan Greenspan's head, blaming him for the subprime crisis (and it seems everything else ranging from global warming to the Lindbergh kidnapping).  It's great to read an intelligent post about the true relationship between Fed actions and the mortgage market.
9:21am • #3

Lets go back to the GOLD standard!

Good post 

11:51am • #4
167,008 Points 3 Featured Posts Outside Blog

Thank you for clearing up a common misconception!!

12:42pm • #5
189,850 Points 11 Featured Posts Outside Blog
Ilyce, Thank you for sharing this.
9:02pm • #6
SEP
22
2007
457,195 Points 2 Featured Posts Outside Blog

Hi Ilyce! :-)

Are you seeing any particular trends in the type of loans being offered and closed right now?

-Keith

2:28am • #7
121,339 Points 4 Featured Posts

Unlike the direct intervention of liquity that the Fed utlizized in August, interest rate cuts take a while to filter through the economy.   It will take several cuts before we see a downward trend in interest rates.

5:02am • #8

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Ilyce N. Powell, CMPS™ - Certified Mortgage Planning Specialist

Baltimore, MD

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AmeriSave Mortgage Corp./ United First Financial

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