Changes in interest rates without Fed interference

In case you’ve been living under a rock, interest rates have ticked up. However, it has been over a year since we have incurred any rate hikes. What becomes even more interesting is when you stop and look at the significant changes in rates, despite Federal Reserve intervention. Why does this occur?

There are a couple things. I’m going to focus on the bank side and business side of rate changes. We had a massive drop in January because it was preceded by the Fed announcing that they were hopeful that they were done increasing rates. The banks heard that news and were able to cut rates because they no longer needed as significant a margin in order to protect themselves to secure profitability. A lender I know constantly tells me that based on where bond rates are, mortgage rates should be significantly lower, but they weren’t.

The bottom line is/was that the banks were nervous. They were hedging their bets. When we didn’t have a huge crash and still had continued, positive growth through the spring, we prohibited the fed from being able to come out and cut rates. Translation: we were too resilient. That brings us to our spike towards the end of April and beginning of May.

Flash forward to between May and now, we’re just waiting. As I said before, it has now been more than a year since the Federal Reserve intervened with rates. Given where the health of the economy is now, there doesn’t appear to be any anticipation of a rate hike. We’re just waiting on a cut. When that happens stay tuned. However, even if we get a rate cut, it doesn’t mean that we will have a strongly correlated reduction in mortgage rates as demonstrated by the significant swings we’ve had in just the last year.