This entry was posted on Wednesday, September 19th, 2007 at 10:37 am and is filed under Mortgage Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Fed Cut Bad News for Mortgage Rates–Whadya Mean?
Everyone is aware of yesterday’s Fed action: a 1/2 point cut in rates. That’s good news for mortgage rates, right? Well, yes and no.
Look how the market responded this morning. Stocks rallied, pulling money out of bonds and depressing bond prices. This sent bond yields—and mortgage rates—temporarily higher.
More importantly, the market sees the Fed action as inflationary in the long run. That will cause the Fed to eventually raise rates to control inflation. Mortgage rates are responding in advance to this concern.
So yes, there is a link between mortgage rates and the two rates—Fed Funds and Discount Rate—that the Fed tinkers with. But the link is indirect and based more on how the market perceives the move in the long run.
Just wanted to lend some clarity to that issue.
September 24th, 2007 at 6:17 pm
What’s certain is that inflation concerns and the dollar exchange rate will heavily impact the bond market in the week ahead.
What’s more is that there is an anticipated fed funds rate cut of 25 basis points at the next Oct. 31st FOMC meeting. Do you think this will happen?
September 25th, 2007 at 9:12 am
Ricardo, after the euphoria of last week’s rate cut, this week’s news hasn’t been happy. The sharpest drop in consumer confidence since Katrina, a GM strike over job security (not wages and benefits–think about that), and Target and Lowes reporting lower same store sale.
Bonds (and mortgage rates are recovering from the inflation fear of the Fed’s last move). I wonder what another cut would do. Seems the Fed is in a tough spot. The long end of the yield curve isn’t dropping as much as the short end. 30 year mortgage rates may not have much improvement left in them either way.
October 19th, 2007 at 11:25 am
What is the air-speed velocity of an unladen swallow?
October 19th, 2007 at 5:38 pm
African or European swallow?