FED CUTS LESS THAN EXPECTED: MORTGAGE RATES IMPROVE

The Federal Reserve today lowered the Federal Funds rate by a quarter point to 4.25% and the Discount rate by a quarter point to 4.75%.

Now remember that the Fed is playing with overnight lending rates between banks and between banks and the Federal Reserve itself.   This does have an impact on mortgage rates, but it does so in advance.  In other words, as economists and bond traders build consensus about what they think the Fed will do, mortgage rates adjust before the actual event. 

Then, when the Fed meets, the markets move based not on what the Fed did but rather upon what the Fed did compared to what they were expected to do.  This past week, mortgage rates moved higher as hopes for a half-point cut evaporated.  The stock market was still hopeful and had been rallying, pulling money from bonds and pushing bond yields (hence mortgage rates) higher.

So today, the stock market was disappointed by the conservative Fed move and was off 175 points a little while ago.  The bond market is rallying helping push mortgage rates lower.  I started getting minor price adjustments from my lenders this afternoon.