FED cuts Interest rates, What does that mean for Mortgage Rates?

   Every time the FED moves I get calls with the same questions or comments... "I heard the FED lowered mortgage rates."  That is hardly the case. The FED moves the shortest of short term rates, Basically the overnight lending rate to banks. 

   Any time the Fed chooses to cut short-term rates - the action is taken with the expressed intention of stimulating economic growth. Investors in the bond and mortgage-backed securities markets are keenly aware of the fact that accelerating economic growth ultimately leads to an increased demand for capital - which in-turn ultimately pushes mortgage interest rates up. Basically good news is bad news for interest rates, and bad news is good news for rates.

   Mortgages look forward and second guess what the next financial report or FED move may be and trade in anticipation of the data or the FED actions

   Mortgage investors live in the future ... not the present. As a general "rule-of-thumb" a sustained effort by the Fed to stimulate future economic growth through repetitive cuts in the benchmark fed fund rate is not typically the "stuff" that lower long-term mortgage interest rates are made.

   Case in Point, this afternoons FED move ended up being bad news for interest rates.  After the last few days being exceptional ones for Mortgage rates we actually saw Mortgage rates Jump 1/4% after the FED lowered 3/4%...

   I hope this helps explain how the market works.

Rob 

Robert Rauf

Countrywide Home Loans

Countrywide Bank, FSB

(732) 740-0175 Cell

(732) 505-2470 Office

Robert_Rauf@countrywide.com

www.RobertRaufHomeLoans.com  

Building financial security, one home owner at a time  

The highest compliment my clients can give me is the referral of their friends, family and business partners. Do you know anyone with a home lending need?