Fed Cuts Rate and Refinancing Goes Nuts!

The Federal Reserve cut their target interest rate, the Fed Funds, by .25% at the conclusion of their two-day Open Market Committee Meeting on September 19th. This rate cut was anticipated by the markets and did not result in any dramatic moves in mortgage rates, up or down.

September Rate Lower Than 2018

We last hit bottom on mortgage rates on September 5th but lost all the gains, from August 5th to September 5th, in the bond market the following week. Despite the move up in mortgage rates the week of September 9th, mortgage rates were still almost 1% lower than at the same time in 2018.

Flat Bond Market

With the .25% rate cut on September 19th, there was some concern that the high CPI, Consumer Price Index, inflation numbers from the prior week would cause the bond market to continue to tank, which would have caused mortgage rates to rise following the Fed rate cut. Instead the Fed announced that inflation was tame and below their 2% target by citing the PCE, Personal Consumption Expenditure, inflation numbers. Despite the Fed citing inflation below their 2% target, which would normally be good for the bond market in conjunction with the rate cut, the markets remained flat and mortgage rates did not drop. The markets know that the CPI number being hot in September, meaning over the Fed’s 2% inflation target, is not a good sign for bonds, which caused the bond market and mortgage rates to remain flat.

Daily Fluctuation

Mortgage rates will continue to fluctuate day to day and week to week based on the tug of war between investor money going into stocks versus bonds, and vice versa. As for future Fed rate cuts and how they may affect mortgage interest rates the rest of this year, only 7 of the 17 Fed members think there will be another rate cut this year. Fed chair Jerome Powell will continue to make rate cut decisions based on future economic data, which means we could still see another rate cut this year if there is another big downturn in the economy. It just seems like less of a sure thing with most Fed members not in favor of another rate cut this year.

Direct Affect on Prime Rate, Not Mortgage Rates

Regardless of the current and future Fed rate cuts, we can see by the market reaction from the September 19th rate cut, Fed rate cuts do not directly affect mortgage rates.

They are an indication of what the Fed is doing to help stimulate the economy, but the