How Benchmark Interest Rate Changes Affect Mortgage Rates

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March 30, 2017

The Federal Reserve raised key short-term interest rates in mid-March. Surprisingly, mortgage rates responded by falling 10 basis points, the fastest pace of decline this year.

Zillow explains that there are two reasons why benchmark rates rose and mortgage rates declined. First, lenders already anticipated a Fed rate change, so mortgage rates were already incorporated into market pricing.

Second, a sense of pessimism amongst the Fed about the economy led to lower mortgage rates. The Fed wasn’t unanimous in its decision, as Federal Reserve Bank of Minneapolis President Neel Kashkari voted against the hike.

This one-two punch of lenders having already priced higher Federal Reserve interest rates into mortgage rates and the small but largely unexpected sign of less-than-full confidence in the economy as displayed by Kashkari had the effect of pushing mortgage rates down, and not up.

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