What the Fed’s surprise interest rate cut means for mortgage rates

The Federal Reserve cut its benchmark interest rate on Tuesday — but don’t expect lower mortgage rates as a result.

“The Fed is catching up,” said Holden Lewis, mortgage and real estate expert at NerdWallet. “Mortgages respond to market forces and not to the Fed. The Fed is actually following and not leading when it comes to mortgage rates.” In particular, mortgage rates in the U.S. roughly track the direction of the yield on the 10-year Treasury note TMUBMUSD10Y, 0.767%. The 10-year Treasury had fallen to all-time lows in recent weeks as investors fled to the safety of bond markets amid the downturn in equity markets. To that extent, the Fed was responding to the bond market’s recent movements with its decision to cut rates Tuesday, economists said.

But another question is emerging in the current low rate environment: Will lenders let mortgage rates go lower? — —Tendayi Kapfidze, chief economist at LendingTree “A big question now becomes what kind of capacity lenders have,” Kapfidze said. “If you don’t have enough people to process the volume you’re getting in, you’re not going to lower rates to attract more volume.”Current low rates have already caused a boom in refinance activity.

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