Despite the recent rate cuts by the Federal Reserve, mortgage rates have not followed suit. In fact, mortgage rates initially dropped in anticipation of the Fed's rate cuts but have been steadily increasing for the past six weeks. Currently, a 30-year mortgage comes with a rate of nearly 6.8%.
The reason behind this unexpected trend lies in the movement of US Treasury bonds. Consumer loan rates, including mortgages, credit cards, and auto loans, are closely linked to the 10-year US Treasury yield, which has been on the rise as bond prices decline. This increase in yields is attributed to the outperformance of the US economy compared to other nations, making US debt more appealing. Additionally, yields have been climbing in anticipation of potential inflation due to proposed economic policies by President-elect Donald Trump.
Despite concerns about the housing market and inflation, the Fed has not opted to further cut rates to influence bond yields lower. Fed Chair Jerome Powell explained that the Fed is monitoring the situation but is not convinced that the bond market weakness will persist. Powell emphasized that while financial conditions are considered in policy decisions, the current state does not warrant immediate action.
