Mortgage Rates

Epic Fed Needle Threading Leaves Charges Comparatively Unchanged


Mortgage rates were surprisingly stable today as the bond market responded to a new monetary policy announcement from the Fed. Perhaps “reacting” is the wrong word given the market reaction. In particular, the bond market (which dictated interest rates on mortgages and beyond) was indistinguishable from most of the other random trading days. That’s just impressive given what happened.

So what happened This takes a little background knowledge, but let’s do it quickly.

  • The Fed is currently buying $ 120 billion / month in new Treasuries and MBS. These purchases are a major contributor to the low interest rate environment for mortgages.
  • The Fed has done this over and over again in the past since 2009.
  • 2013 was the first significant example of the Fed “cutting back” on its monthly bond purchases after a lengthy period of adjustment. The markets freaked out and rates rose as fast as they have in years.
  • Late 2021 is arguably the second major example of a Fed tightening, and markets have been speculating when it will be official.

Today’s announcement brought forward the words suggesting the Fed will begin tightening at the next monetary policy meeting in November. Then, in the post-meeting press conference, Fed Chairman Powell bluntly and explicitly confirmed that the Fed does indeed plan to announce the reduction plan at the next meeting, unless the next job report is surprisingly bad.

Bonds definitely experienced some volatility during today’s Fed events, but again that volatility was in a perfectly normal range. The lack of any major market reaction is evidence of the Fed’s transparency efforts. In short, they ended up saying almost exactly what they telegraphed in the last month of speeches, and the markets were positioned for an “expected” outcome. So the Fed was not only transparent, the markets also relied entirely on this transparency. For some drama in 2013, today amounted to a perfectly threaded needle of epic proportions.

What does this mean for mortgage rates? Today? Not really. The lenders hardly moved from yesterday.

After all of this, it sometimes takes a few days for interest rate dynamics to really kick in after the Fed. In addition, we expect some of today’s potential impact to become apparent instead in the course of the next Labor Market Report in October 8.