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How closely do mortgage interest rates tend to follow the Fed’s rate decisions?
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The Federal Reserve slashed the federal funds rate last week for the first time in four years, boosting borrower hopes that the cut trickles down into new mortgage and refinance rates. The Fed’s action ends 14 months of rate pauses that, along with inflation, unemployment and other factors, have prolonged elevated borrowing costs.
Although the Fed doesn’t directly set rates for home loans, its decisions may influence them. Mortgage rates often — but not always— tend to fluctuate in line with the federal funds rate. Sometimes, mortgage rates react before anticipated decisions. For example, mortgage rates dropped roughly a half-percentage point in July and August, perhaps in anticipation of the expected Federal rate cut.
Here’s what you need to know about how the Federal Reserve influences mortgage rates.
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How closely do mortgage interest rates tend to follow the Fed’s rate decisions?
Mortgage rates often trend in the same direction as the federal funds rate. As Robert R. Johnson, a professor at Heider College of Business, Creighton University, notes, “Directionally, mortgage rates follow Fed changes very closely. In other words, you are highly unlikely to see mortgage rates trend upward when the Fed is easing and are highly unlikely to see mortgage rates trend downward when the Fed is tightening. I would argue that Federal Reserve monetary policy is the single most important factor that influences mortgage rates.”
Mortgage rates are influenced by several factors
Federal Reserve decisions may impact mortgage rates, but they’re also affected by inflation, the bond market, the unemployment rate and the broader economy. Generally, when the economy expands, job growth and consumer spending are high, and mortgage rates tend to rise. The opposite is also true: When the economy tightens, typically more people are out of work, spending is down and mortgage rates may fall.
“There are many factors that cause mortgage rates to rise and fall,” says Brian Shahwan, vice president and mortgage broker at William Raveis Mortgage. “The most important factors to watch are week-over-week economic reports. As inflation cools and the economy restabilizes, mortgage rates will soften. If weekly economic data shows a strong economy, mortgage rates will start rising again.”
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Do mortgage rates price in anticipated rate changes?
Yes, mortgage rates often react to anticipated Federal Reserve rate changes before they happen. For example, if the Fed is expected to raise rates, lenders may raise their rates beforehand to avoid paying higher borrowing costs later. By contrast, when lenders expect the Fed to cut interest rates, they may lower their rates early to get ahead of the competition and encourage borrowers to lock in before others lower their rates.
“As we’ve recently seen, markets can be sensitive to the projections announced at each Fed meeting,” says Shahwan. “When mortgage lenders ‘price in’ potential Fed rate hikes or cuts, they are adjusting mortgage rates based on the forecast of the Fed. For example, Fed Chair [Jerome] Powell announced in August that it was time for a cut in September. Mortgage banks, in turn, started dropping rates solely from the rhetoric that inflation was cooling.”
Should homebuyers buy now or wait?
Choosing whether to buy now or wait is a personal decision that will depend on your finances, unique financial situation, lifestyle preferences and long-term goals. If you’ve found your dream home and can comfortably afford the monthly mortgage payment, property taxes and other costs of homeownership, it may make sense to buy now. As many real estate professionals often advise, “Marry the house, date the rate.” In other words, focus on finding your dream home. You could always refinance later if rates drop significantly.
On the other hand, if rates continue to drop, waiting to buy might result in a lower mortgage rate. Of course, timing the market comes with inherent risks. For instance, falling mortgage rates could drive up competition for listed homes and push home prices higher.
The bottom line
No one can predict with certainty what the Fed will do with interest rates, including the agency itself. At the Fed’s press conference during September’s Committee meeting, Powell acknowledged it isn’t following a preset course.
Still, Powell anticipates the Fed rate ending the year at 4.40% and closing 2025 at 3.40%. With the rate currently sitting at a range of 4.75% to 5.00%, the agency would have to lower rates again this year and next to hit those targets. If mortgage interest rates follow the Federal Reserve—either in anticipation of a rate cut or after one — borrowers may benefit from even lower rates in the near future.
HUNTSVILLE — A Texas man who had waived his right to appeal his death sentence was put to death Tuesday evening for killing his 3-month-old son more than 16 years ago, one of five executions scheduled within a week’s time in the U.S.
AP
Travis Mullis, 38, received a lethal injection at the state penitentiary in Huntsville and was pronounced dead at 7:01 p.m. CDT. He was condemned for stomping to death his son Alijah in January 2008.
Mullis was the fourth inmate put to death this year in Texas, the nation’s busiest capital punishment state. Another execution was carried out Tuesday evening in Missouri, and on Thursday, executions were scheduled to take place in Oklahoma and Alabama. South Carolina conducted an execution Friday.
Authorities said Mullis, then 21 and living in Brazoria County, drove to nearby Galveston with his son after fighting with his girlfriend. Mullis parked his car and sexually assaulted his son. After the infant began to cry uncontrollably, Mullis began strangling the child before taking him out of the car and stomping on his head, according to authorities.
The infant’s body was later found on the roadside. Mullis fled the state but was later arrested after surrendering to police in Philadelphia.
Mullis’ execution proceeded after one of his attorneys, Shawn Nolan, said he planned no late appeals in a bid to spare the inmate’s life. Nolan also said in a statement Tuesday afternoon that Texas would be executing a “redeemed man” who has always accepted responsibility for committing “an awful crime.”
“He never had a chance at life being abandoned by his parents and then severely abused by his adoptive father starting at age three. During his decade and a half on death row, he spent countless hours working on his redemption. And he achieved it. The Travis that Texas wanted to kill is long gone. Rest in Peace TJ,” Nolan said.
Mullis declined an offer earlier in the day to phone his attorney from a holding cell outside the death chamber, said Texas Department of Criminal Justice spokeswoman Hannah Haney. His lawyers also did not file a clemency petition with the Texas Board of Pardons and Paroles.
In a letter submitted in February to U.S. District Judge George Hanks in Houston, Mullis wrote that he had no desire to challenge his case any further. Mullis has previously taken responsibility for his son’s death and has said “his punishment fit the crime.”
At Mullis’ trial, prosecutors said Mullis was a “monster” who manipulated people, was deceitful and refused the medical and psychiatric help he had been offered.
Since his conviction in 2011, Mullis has long been at odds with his various attorneys over whether to appeal his case. At times, Mullis had asked that his appeals be waived, only to later change his mind.
Nolan had previously told the 5th U.S. Circuit Court of Appeals during a June 2023 hearing that state courts in Texas had erred in ruling that Mullis had been mentally competent when he had waived his right to appeal his case about a decade earlier.
Nolan told the appeals court that Mullis has been treated for “profound mental illness” since he was 3 years old, was sexually abused as a child and is “severely bipolar,” leading him to change his mind about appealing.
Natalie Thompson, who at the time was with the Texas Attorney General’s Office, told the appeals court that Mullis understood what he was doing and could go against his lawyers’ advice “even if he’s suffering from mental illness.”
The appeals court upheld Hank’s ruling from 2021 that found Mullis “repeatedly competently chose to waive review” of his death sentence.
The U.S. Supreme Court has prohibited the application of the death penalty for the intellectually disabled, but not for people with serious mental illness.
If the remaining executions in Texas, Alabama and Oklahoma are carried out as planned, it will mark the first time in more than 20 years — since July 2003 — that five were held in seven days, according to the nonprofit Death Penalty Information Center, which takes no position on capital punishment but has criticized the way states carry out executions.
The first took place Friday when South Carolina put inmate Freddie Owens to death. Also Tuesday, Marcellus Williams was executed in Missouri. On Thursday, executions are scheduled for Alan Miller in Alabama and Emmanuel Littlejohn in Oklahoma.
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