Does the Fed Rate affect Mortgage Rates? December 18, 2017

First of all, the rate the Fed adjusts (aptly named, the Fed Funds Rate), governs only the shortest-time frames (overnight loans among big banks).? Although its effects radiate to longer-term debt like mortgages, the two are far from joined at the hip.? Short term rates often move one direction while long term rates move another.

More importantly, everyone?responsible for trading the bonds that govern interest rates (and I do mean every last person without a single exception) is usually well aware when?the Fed is going to hike rates.? Sometimes bond traders are caught off guard, but that is a rare occasion.

When bond traders know what’s going to happen in the future, they’ll trade accordingly as soon as possible.? This can be days, sometimes even weeks before the Fed meets.? That means rates have usually already adjusted to any Fed Fund action before the Fed takes action.? So many time a Fed hike in rates is a?non-event.