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Want More Proof That The Fed Doesn't Control Mortgage Rates?

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 0.125% on average. But, in the two days since, mortgage rates have not only given back those gains, but have approached 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 complicated web, of course, but consider it to be additional evidence that the Fed Funds Rate and mortgage rates are unrelated. for more updates visit my Blog at

Posted by Tony Garshnick on 09/23/2007 02:55 PM

Comments (5)

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5 Comments on Want More Proof That The Fed Doesn't Control Mortgage Rates?

I agree. The Fed Funds Rate and mortgage rates have always been linked on a psychological level. There are tiers of instruments that separate them, but generally they resolve in common directions.

09/23/2007 03:13 PM

by Michael Tarabotto (Certified Appraiser) Santa Clarita, San Fernando, Westside (California Appraisal Solutions Corp.)

But hang on just a second here. Last week in advance of the cut that everyone knew was coming. mortgage rates had their biggest drop ion months. In other words, the mortgage rate had already taken into account the Fed drop. For it to move further, the fed had to spring a surprise - a 1% drop would have been that surprise but it didn't happen.

09/23/2007 03:19 PM

by Simon Conway (Picket Fence Realty)

Mortage rates are currently begged to the 10 year which has been inverted ... that cannot last forever. So of course things moved.

09/23/2007 03:51 PM

by Allen Wright CNS, AHS, REPS (RealtyU)

I try to correct anyone who may be parroting the information that this is good news but they don't believe me :shrug:

Great pointers!

09/23/2007 04:52 PM

by Renee Burrows - Las Vegas NV Real Estate (Nevada Realty Solutions)

Hi Tony

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