Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another. On the graph see how the interest rate on the 30-Year Fixed FNMA have been on the rise since the last couple of Fed Rate Cuts. It is often said history repeats itself, right?
Today, the mortgage bonds dipped -135bp, which is the biggest dent in the last two years, as a result of worries of inflationary signs that experts have seen in the economy, especially with the weak U.S. dollar and the high commodity prices. Both the oil price and the gold have risen highly against the weak U.S. dollar. Keep in mind that high commodities prices often lead to inflation, which is hostile towards mortgage bonds.
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