How the Fed's rate cut impacts mortgage rates

Core Viewpoint - The Federal Reserve's recent quarter-point rate cut may not lead to a sustained decline in mortgage rates, as historical trends suggest that mortgage rates can rise even when the Fed cuts rates [1][3]. Group 1: Impact of Federal Reserve Rate Cuts - The Federal Reserve cut its benchmark rate by a quarter-point and indicated the possibility of two more cuts this year, reflecting concerns about the U.S. job market [1]. - Mortgage rates have been decreasing since late July, with the average rate on a 30-year mortgage at 6.35%, the lowest in nearly a year [1]. - A similar trend was observed last year, where mortgage rates fell to a two-year low of 6.08% shortly after the Fed's first rate cut in over four years [2]. Group 2: Historical Trends of Mortgage Rates - Despite the Fed's rate cuts last year, mortgage rates eventually rose, reaching over 7% by mid-January [3]. - The current situation mirrors last year's pattern, indicating that the Fed's rate cut does not guarantee a continued decline in mortgage rates [3]. Group 3: Factors Influencing Mortgage Rates - Mortgage rates are influenced by various factors, including the Fed's interest rate policy and bond market investors' expectations regarding the economy and inflation [4]. - The 10-year Treasury yield serves as a benchmark for mortgage rates, as mortgages are often bundled into mortgage-backed securities that compete with these government bonds [5]. - When the yield on 10-year Treasury bonds rises, mortgage rates typically increase, and vice versa [5].