Although the Fed cut the Fed Funds Rate on Wednesday by the expected .25%, their hawkish forward guidance – reducing the projected cuts in 2025 from 1.00% to 0.50% plus upgrading their view of the economy – caused Bonds to sell off sharply. Mortgage Bonds ended the day down in price by 47 basis points, and when the price of a bond goes down, the yield – which is the interest rate – goes up.
The result was that lenders repriced for the worse several times on Wednesday. Comparing Tuesday’s rates to where they ended on Wednesday, mortgage rates went up by about 0.250% across the board.
One bright spot to keep in mind is that the Fed can change their stance very quickly. All it will take is one “bad” Jobs Report or for inflation to move lower and they will pivot back toward more rate cuts which would cause Bonds to rally and mortgage rates to go down. So although Wednesday’s Grinch news did not bring us holiday joy, it may be that this is only a temporary setback on the road to lower interest rates.
