Mortgage rates are at their highest levels in two months. This, after the Federal Reserve cut the federal funds rate for the first time in four years.
The Federal Open Market Committee sets a target range for the federal funds rate. The federal funds rate? The federal funds rate is the interest rate banks pay on money they – as banks – borrow from other banks.
The Fed does not directly set mortgage rates.
The Fed influences mortgage rates. The Fed influences mortgage rates through the role the Fed plays in setting monetary policy. As such, the Fed indirectly affects the interest rates borrowers lock into at the consumer level, by way of how credit spreads evolve in the market as a result of the Fed’s actions. In relation to the issuance of debt instruments.
Credit spreads consist of the purchases of – and then the simultaneous sales of – contracts within the same asset classes. Credit spreads are not always so easy to predict. Then too, mortgage rates are not necessarily – nor definitively – so easy to predict, short term, either. Although the general direction mortgage rates will end up heading can rather accurately be predicted through actions taken by the Fed.
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