If the Fed cut rates again, why are mortgage rates still high?

by Cathi Powell

If you've been watching mortgage rates like a hawk, you might be scratching your head wondering: why aren't they budging downwards, even with the Federal Reserve slashing interest rates by another 0.25 percentage point this month? It sounds like a riddle wrapped in an enigma, but fear not! Let's untangle this mystery together!

To put it in the simplest of terms, Mortgage rates remain high despite Federal Reserve interest rate cuts because they are largely linked to 10-year Treasury bond yields, which are affected by inflation and global economic trends. Fed cuts lower short-term borrowing costs but does not directly reduce mortgage rates.

For example, when inflation is high, lenders become cautious because their money loses value over time. This means they may charge more for long-term loans, like mortgages, to protect themselves. Also, if there are concerns about economic slowdowns or problems in other countries, it can affect investor behavior, impacting Treasury bond yields and, in turn, mortgage rates.

So, while the Fed's rate cuts may stir the economic pot, they don’t automatically mean lower mortgage rates. Mortgage rates depend on a mix of different economic factors, so if you’re waiting for them to go down, it’s worth paying attention to the broader economic picture, not just what the Fed does.