The Federal Reserve cut its benchmark interest rate to 0% on Sunday — but don’t necessarily expect lower mortgage rates as a result.
The Fed announced it would cut interest rates a full percentage point Sunday night, in addition to a $700 billion quantitative easing program.
When the Fed cut interest rates two weeks ago, mortgage experts noted that the central bank was “catching up” to where markets had headed. “Mortgages respond to market forces and not to the Fed,” Holden Lewis, mortgage and real estate expert at NerdWallet, told MarketWatch earlier this month. “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, 0.649%. 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. Last week, mortgage rates actually increased slightly, in part because some lenders had artificially raised rates to stem the number of people applying for home loans and give themselves time to work through the backlog of applications that accumulated as rates fell.
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