Federal Reserve and Mortgage Rates

In an effort to slow down ever rising inflation, the Federal Reserve raised rates by three-quarters of a percentage point for the fourth time this year during its November meeting. The Federal Reserve does not set mortgage rates. However, the mortgage industry keeps a close eye on the Fed and attempts to interpret the Fed’s actions and how it affects how much you pay for your home loan.

What does the Federal Reserve do?

The Federal Reserve sets the borrowing cost for shorter-term loan in the U.S. During the pandemic this was kept near zero. The Fed Rate governs how much banks pay in interest to borrow and lend funds from their excess reserves kept at the Fed on an overnight basis.

Mortgages track the 10-year Treasury rate. Changes to the fed funds rate may or may not affect the rate on a 10-year Treasury bond. 10-year Treasury bonds are issued by the government and mature in 10 years.

Mortgage rate influences.

Fixed-rate mortgages are tied to the 10-year Treasury rate. When the 10-year Treasury rate increases, the most common mortgage, the 30-year fixed-rate mortgage tends to do the same, and vice versa. However, it’s not a point for point correlation.

Housing price inflation also plays a role. When inflation is low, rates tend to be lower. When inflation rises, rates for fixed-rate mortgages tend to rise as well.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.