THE MORTGAGE BROTHERS SHOW
Fed Fund Rate Update
The Federal Reserve lowered the Fed Funds rate by .25% down to 2%. We’ll get into what this means for home mortgages below.
*The following transcript has been edited for clarity.
Eddie Knoell — I’m Eddie.
Tom Knoell — And I’m Tom.
Eddie — Welcome everyone. This is the Mortgage Brothers Podcast and today we’re talking about the Fed Fund rate. On September 18th they announced what they were going to do with rates, whether they were going to keep them the same, raise them, or lower them. And they lowered them from 2¼% to 2%. Then ten minutes after they did that I got a call from a borrower, a past customer, “Eddie, I heard rates were lower.”
Tom — That’s right.
Eddie — So we’re going to say the same thing that I said last time in July.
Tom — Yeah. That the Fed Funds Rate does not correlate a hundred percent to mortgages. The Fed Funds Rate affects consumer debt, ARM’s, reverse mortgages, credit card debt, small business loans, anything that is tied to the prime rate, that’s really what the Feds do. So, the Fed Funds Rate affects interest rates, but not necessarily in the exact direction that they push those rates.
Eddie — Right. And, in fact, the moment the Fed lowered the rate, there were a lot of different things going on, which can happen, the actual yield, which means that the rates themselves started going up a little bit. The market did not react like most people thought, which was that rates were going to go down. Rates tomorrow morning, again, we are recording this on September 18th so people who actually are listening to this probably have several days of market information that will either lower rates or raise rates, but right now the reaction has been that the interest rates are a little higher.
Tom — Yeah, I was working with a couple of borrowers today and we were talking about rolling the dice. Do we wait until the Fed Funds Rate is announced? And I kind of knew that, I mean it was going to be, potentially where it was today, but the borrowers, both of them really thought that the rates were going to drop. And so when I called them, I actually said, “Hey, you know what, it actually, it didn’t go up a little bit and we can talk about this later, but there was a small little closing costs piece that went up.” You know, that’s how sometimes interest rates move. They don’t actually move themselves, but just the closing costs that are built into that rate can go up or down. So it was slightly higher today if anything.
Eddie — Yeah, and I’m going to show everybody here real quick. So, the CME group is showing the next meeting coming up, October 30th, what the prediction is. Right now they are predicting that about 57% of the analysts believe that there will be no change. It’ll stay right here at 2%. About 42% believe that the Fed will actually reduce rates again. So the next Fed meeting is October 30th. So many things are going to happen between now and then. And that’s where the expectations and those percentages are going to change.
Tom — Great. And we’ve mentioned before that starting now until the next time the Feds meet, the market will be anticipating what the feds will do. So one of the key factors is if the Feds do something totally different than what the market thinks they’re going to do.
So as long as the feds do what the market thinks, typically there’s very little change. But if they come out and they swing a different direction then that could really change things. Also, in this article, I thought it was interesting, the actual headline had said: “Higher mortgage rates despite the Feds rate dropping.”
Eddie — Yeah, that’s right. And this came out today and yeah, higher mortgage rates.
Tom — So, something else that I think is interesting, and it’s in that article, is talking about the correlation and understanding that mortgage rates aren’t directly connected to the Fed Funds Rate. One of the proofs for it not being connected is what was in that article, which is that the Feds only meet eight times a year. Yet mortgage rates will change every business day of every year. And what is underlying the mortgage rates are the bond rates, which will change a hundred times a day. So there are so many things at play that there’s no way that the Fed Funds Rate directly ties to that mortgage. So it’s always worth keeping up to date and checking in with us, since just because they cut it a quarter doesn’t mean interest rates will go down a quarter.
Eddie — You got it. All right. I think we’re ready to go home.
Tom — All right. Let’s go home. See ya.
Eddie — Hey guys, thanks for listening to The Mortgage Brothers Show. Please let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to email@example.com or yours truly at firstname.lastname@example.org and be sure to ask us for a free quote on your next mortgage. We’ll be happy to help. Tom and I will personally work with you and help you through the whole process.
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