You asked what the markets have to with mortgage rates. Markets set mortgage rates, not the fed. Any correlation between the two depends on what mortgage investors want from mortgage backed securities. These are sophisticated institutional managers. - ThreadSky

michaeltucsonaz.bsky.social • 188 days ago

You asked what the markets have to with mortgage rates. Markets set mortgage rates, not the fed.

Any correlation between the two depends on what mortgage investors want from mortgage backed securities. These are sophisticated institutional managers.

Comments

owlchris00.bsky.social•188 days ago

What I’m saying is the Fed rate influences mortgage rates. We can call it “sophisticated”, but ultimately doesn’t it follow the direction of the Fed rate?

michaeltucsonaz.bsky.social•188 days ago

Do these investors believe the Fed? Does the Fed believe in low inflation and future rate cuts itself?

On 12/18, the Fed’s dot plot was dropped from 4 rate cuts in 2025 to 2 in 2025. Those might never arrive bc the Fed is careful after being late in 2021-22 while tariff risk threatens inflation.

michaeltucsonaz.bsky.social•188 days ago

Markets correlate more with the Fed’s ability to accurately forecast and manage inflation.

At the end of 2024, markets have done or little or nothing to compete harder for lower interest loan balances. I would not say it is the feds “fault” that Trump threatens trade wars.

owlchris00.bsky.social•188 days ago

For the sake of argument, and perhaps for my own learning here, let’s say the Fed decides to drop rates all the way down to near 0% at its next meeting. What would you say would happen to mortgage rates?

michaeltucsonaz.bsky.social•188 days ago

I bet markets would rebel against such an irresponsible and raise rates.

A policy change from 4.25% to 0.25% (i.e. somewhere near zero) would indicate to most observers that the Fed has abandoned its mandate to manage stable prices inside of its stated inflation target.

michaeltucsonaz.bsky.social•188 days ago

From that moment, investors *expect more inflation* and leave the mortgage market for new long term loans, possibly selling some existing loans from their portfolio.

Remaining investors demand higher interest loans while they wait for the White House and Congress to fix the feds error.

michaeltucsonaz.bsky.social•188 days ago

I accept that your example was not very realistic vs more likely scenarios, but it’s a good way to show that credibility and consistency are essential.

I would say the Fed has been very professional/consistent, but they don’t have the credibility to maintain low inflation leading into Trump v2.

Comments

Posting Rules

Reply