Mortgage Rates Surge Lower After Fed Announcement, But Not Necessarily Because of It
Today was “Fed day” and mortgage rates fell quite a bit. So it must have been due to the Fed announcement, right? Not exactly… The Fed helped, but more so by getting out of the way for a bond market that was already rallying. Let’s talk about what all that means. “Fed day” means that today was one of 8 scheduled announcements by the Fed regarding monetary policy. At the simplest level, this just means they’ll announce a change or no change in the Fed Funds Rate. The market didn’t expect a change today and it didn’t get one. Beyond the rate announcement, there’s also a press conference with Fed Chair Powell where the market can glean clues about future Fed moves. Little changed there and Powell didn’t say anything materially different than his last public appearance. Perhaps traders were concerned that some of the recent data would have the Fed thinking more about hiking short term rates and the positive reaction was akin to a sigh of relief. Even then, it wasn’t really the Fed reaction that helped rates the most. Mortgage rates improve when bonds rally and bonds rallied most sharply in the AM hours after a series of economic reports. The data was either in line with expectations or weaker, and low rates love weak data. There was also a more detailed update from Treasury regarding auction amounts. Treasury auctions determine the “supply” of a Treasury securities, and that supply has a critical impact on interest rate momentum. It’s a bigger deal for Treasuries than for the bonds that dictate mortgage rates, but the two are very closely correlated.