Are Mortgage Rates Going Down After the Fed Cuts Rates?

By Josh Painter

Josh Painter is a coach, philanthropist, and the author of the book Best Version Ever.

Why do mortgage rates sometimes go up after a Fed rate cut? Most people assume that when the Fed lowers rates, mortgage rates automatically drop too. It seems logical, but in reality, mortgage rates can actually rise on the very same day the Fed makes a cut. Let me explain why.

1. The market already priced in the cut. By the time the Fed announces a rate cut, markets have usually expected it for weeks. Lenders and bond traders already built those expectations into pricing, and rates may have already hit their lows beforehand. When the cut finally happens, it’s old news. If investors wanted more aggressive action but got less, they often sell bonds, pushing long-term yields and mortgage rates higher.

2. Inflation fears and how mortgage rates really move. Rate cuts can boost the economy, but that often leads to higher prices. Inflation eats away at bond values, so investors demand higher yields, pushing mortgage rates up. And despite what many think, mortgage rates follow long-term mortgage bonds, not the Fed’s overnight rate. This way, they can move the opposite way if traders expect rising inflation or see the Fed as not aggressive enough.

3. The Fed’s messaging matters. If the Fed cuts rates but hints at inflation concerns or fewer cuts in the future, mortgage rates can jump right away. We’ve seen this happen before. In July 2019, the Fed cut rates for the first time in years, and mortgage rates actually went up that very day. Then, in March 2020, during the early days of COVID-19, the Fed slashed rates to near zero, but mortgage rates initially spiked before eventually coming down.

Mortgage rates are driven by the bond market and investor expectations, not just the Fed’s short-term rate. So next time you hear about a Fed cut, don’t assume mortgage rates will drop right away.

If you’re thinking about buying, selling, or refinancing this year, don’t hesitate to call me at 951-265-3524 or send an email to jpainter78@gmail.com. I’ll help you understand what’s really happening in the market so you can make the smartest move before the next Fed announcement.