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Why is it that when the Federal Reserve cut rates twice last month mortgage rates not improve?
Greg H. in Birmingham asks:
I have been following mortgage rates closely as I am looking to refinance soon. Why is it that when the Federal Reserve cut rates twice last month for .750% and then for .500%, did mortgage rates not improve?
Greg,
I am so glad you asked as I get this question at least 3 times per day. Here are a few things to keep in mind to help you understand:
1) The Fed controls SHORT-TERM interest rates. Mortgages are LONG_TERM debts.
2) Bond traders move ahead of the Fed and trade based on speculation. For example company XYZ announces their biggest profits in history, $2.00 per share, but the stock goes down in price, why? Because investors were expecting $2.25 they had been buying the stock on speculation and pushing the price up, before the profits were announced.
3) 75% of the time mortgage rates go up after a fed cut as investors feel it will stimulate the economy and cause inflation
4) The Fed only has an indirect influence on mortgage rates...along with about 25 other major influences, such as foreign markets, gold, and most importantly economic data like unemployment and inflation reports.
So you see Greg that understanding and predicting where interest rates are headed in very complicated, even to the Wall Street experts. If you would like to discuss your opinions on the subject please give me a call.
Stephen
If you have a question that you would like me to answer please email me at Stephen@katzmortgageteam.com.
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