Why the Fed Cuts Don’t Affect Mortgage Rates

I cannot stress this enough — when the Fed announces a rate cut, it does not mean that mortgage rates will drop overnight as a result. The Fed has now cut rates three times in 2019 and each time, our Team receives calls, texts and e mails from clients who are currently in escrow asking if they can benefit from the Fed cut and get a lower interest rate.
That’s. Not. How. It. Works.
(I would’ve used the hand-clap emoji there if I was texting this.)
Clients 100% get a pass for this and it’s completely understandable that they would ask this question. I mean, common sense would suggest that when rates of any sort go down, mortgage rates should too, right? And for a client, it’s certainly a question worth asking. Our Team happily and patiently explains to clients that they’re not missing out on lower rates made possible by the Fed cut.
(*Side note — industry professionals shouldn’t be afforded the same leeway. It’s absolutely shameful seeing other lenders post on social media that, “the Fed cut rates — now’s the time to refi! Or buy!” These individuals are either uninformed or intentionally misleading. OK, vent over. 😊)
As I mentioned, the Fed has cut rates three times in 2019. Here’s a look at rates over the last three months, courtesy of Bankrate:

There’s obviously been some fluctuation over the last three months, but for the most part, rates are relatively unchanged this last half of 2019. Any movement we saw had much more to do with US and global economic activity, not Fed cuts.
Takeaway: even though the Fed has cut rates THREE TIMES in 2019, mortgage rates are essentially the same as they were three months ago. Doesn’t that show us that the Fed cuts don’t directly impact mortgage rates?
But why is this? Simply put, the Fed cuts do not come as a surprise to banks and investors who are setting the mortgage rates. They anticipate the Fed activity for weeks or months in advance and set their mortgage rates accordingly. Here’s a quick article from Mortgage News Daily that elaborates on this: http://www.mortgagenewsdaily.com/consumer_rates/925767.aspx
Don’t fall victim to the misinformation out there.
