The Federal Reserve does not directly influence the behavior of mortgage interest rates. Rather, mortgage interest rates are dictated by investor emotion.

Mortgage interest rates are based on Mortgage Backed Securities (MBS) or bonds (NOT the 10-year or 30-year T-Bills!). Basically, if the bonds sell high, bond yields and mortgage interest rates go down. If bonds sell low, then bond yields and mortgage interest rates go up.

Bonds are affected by many economic forces that influence the demand for them. Each week, the Fed releases various economic reports that affect the movement of bonds. Foreign markets can also affect the bond market, which, in turn, will affect mortgage interest rates.

Factors that cause mortgage interest rates to fluctuate include economic reports on stock and bond behavior in the stock market, the amount of buyers to sellers that affects the movement of money in and out of the stock market, unemployment rates, inflation fears, and to a lesser extent, economic data such as GDP, CPI, PPI, etc. that reflect the strength of the economy.

I hope that it's now clear as mud!

Lewis, thank you for posting that clarification regarding MBS vs. Treasury securities.  Many people in our industry mistake the coincidental directionality of MBS and Treasuries for correlation, when that is quite often, not the case.  

What is the probability of mortgage interest going down within the coming few weeks

Ann...... Lewis basically summed it up well. Not trying to sound rude here, but your post had a big hole in it.  You basically talked about overseas investors.... there are tons of reasons why, but in the last 4 months, MBS's have had the most influence on rates going up and down. I wrote a blog on this and will link it later...

It is the consumers and the media that seem mostly to think the Fed controls bond rates. It actually seems to me to be tied precisely to the expectations of the potential impact on inflation from the day's financial news.

If the report says people are buying or gas prices are increasing, then I expect a rate increase for the day.

If the report says people are not buying or inventories are increasing, then I expect a rate drop for the day.

Many LO's gain insight from Mortgage Market Guide.

Richard

Thank you, Lewis.  I concur.