When the Federal Reserve cuts the rates, many buyers and sellers call their mortgage representatives expecting a lower interest rate. Others who have been waiting to refinance are confused as to why mortgage rates have not moved lower during the recent Fed rate cutting spree.
Is a Fed rate cut really good news for mortgage rates? Contrary to the media and general publics understanding, history has proven that the Fed Rate cuts typically have an adverse affect on mortgage rates. This is the due to the fact that when the Fed cuts the rates, it is to spur on the U.S. financial markets and the stock market. When this is done, our dollar typically weakens which causes inflation. Inflation leads to negative movement for mortgage bonds which means mortgage rates tend to increase rather than decrease.
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