How the Fed does and does not influence mortgage rates

Video Transcript:

The Federal Open Market Committee led by current Chairperson, Jay Powell, is scheduled to meet this week as they do every six weeks. What makes this week unique is the Fed is expected to hike short-term interest rates by one quarter of one percent (.25%).

The Fed controls an interest rate called the Federal Funds Rate, and pragmatically speaking, it actually plays a very obscure role in our economy. The Federal Funds Rate dictates the rate of interest at which banks charge each other when they lend money to each other to meet overnight reserve requirements.

I won’t bore you with those details, but the bottom line is, the Fed does not directly control mortgage rates. When you see that the Fed hikes rates this Wednesday by one quarter of one percent, don’t worry that if you call us the next day that your mortgage rate on a 30 year fixed rate loan will automatically be one quarter of one point higher.

The Feds comments and actions can certainly influence mortgage rates for better or worse, but just because the Fed hikes short term interest rates doesn’t mean that mortgage rates will automatically go higher.

Are you looking for a mortgage professional that is competent and is going to help you navigate this complicated landscape? We’d love to be a resource. Contact us today. Thanks for watching.