Fed’s Policy Rate Hike Impact on Mortgage Rates: An Analysis

The recent policy rate hike by the Federal Reserve has caused fluctuations in mortgage rates, leading to uncertainty among potential borrowers. However, it’s essential to understand that the two events are not directly related, as the rate increase was already factored into the day before’s mortgage rates, which actually moved lower later in the day.

Data-Dependent Nature of Rates:

Fed Chair Powell emphasized that mortgage rates are “data dependent,” indicating that they rely on economic indicators. It’s important to note that this dependency does not imply a specific direction for rates. They could have risen or fallen depending on the strength of the economic data.

Impact of Strong Economic Reports:

Yesterday’s economic reports surpassed expectations, leading to upward pressure on mortgage rates. As a general trend, stronger economic data tends to push rates higher, as was the case yesterday.

Current Mortgage Rate Scenario:

Mortgage rates experienced a significant jump yesterday, erasing the progress made the day before when the average rate moved below 7%. As of now, lenders are closer to 7.125%, in contrast to Freddie Mac’s weekly rate survey, which reported a rate of 6.81%.

Understanding Freddie Mac’s Rate Survey:

Freddie Mac’s weekly rate survey is a lagging indicator, providing a 5-day average rate through Wednesday and releasing it on Thursday. This can lead to discrepancies when there are considerable rate swings on Thursdays, like the one experienced yesterday.

Future Outlook and Data Dependence:

The market’s expectations for future rate changes are tied to economic data. If the economy continues to show strength, there might be increasing expectations of more rate hikes from the Federal Reserve, leading to higher long-term rates, including those for mortgages. Conversely, weaker economic data might initially be met with skepticism due to the recent trend of positive surprises.

Conclusion:

The recent policy rate hike and its impact on mortgage rates demonstrate the significance of economic data on rate movements. Potential borrowers should closely monitor economic indicators as they navigate the current mortgage rate landscape. Remember that Freddie Mac’s weekly rate survey may not reflect real-time rate changes on Thursdays. Stay informed and watch for consistency in economic trends to make well-informed mortgage decisions.