As Orion’s management has noted many times, the U.S. Federal Reserve, aka central bank, charged with stability in the banking system as well as the general economy, does not set mortgage rates. But our broker clients should let your clients know that the same factors that influence the Fed are the ones that can move mortgage rates, so we found it interesting that primary dealer banks (Chase, Bank of America, Wells Fargo, and some others) have pushed back their predictions on when the Federal Reserve will end its quantitative tightening (QT) process to the fourth quarter, according to a survey by the Federal Reserve Bank of New York.

On that timeline, the Fed's balance sheet (which includes its ownership of Treasury and mortgage-backed securities) would shrink from the current $7.764 trillion to $6.75 trillion. It goes down either through people paying off their mortgage or by selling securities. The QT process has complemented the rate hikes delivered by the Fed as part of its effort to lower inflation back to its 2 percent target. Remember that the central bank aggressively bought Treasury bonds and mortgage-based securities at the start of the coronavirus pandemic in the spring of 2020, causing its overall holdings of cash and bonds to more than double to around $9 trillion by the summer of 2022.

Brokers know that the Fed has been shrinking its holdings since last year but has not given much guidance about the timeline. Minutes from the Fed's meeting last month, which were released last Wednesday, noted that some officials are now ready to talk about the how and when of ending QT. The question has been on the minds of investors and traders given the apparent end of the current rate hiking cycle and rising bets in financial markets that the central bank will be cutting rates as soon as next spring as inflation pressures wane.

The challenge for the Fed in dialing back stimulus is that it is trying to achieve a level of liquidity in the financial system that will allow it to retain control over short-term rates, with a cushion to deal with the volatility that can often strike money markets. Orion’s brokers know that the markets, however, don’t like uncertainty. More guidance on the QT endgame will be coming out soon, as well as how (actively selling securities, which would drive prices down and rates up, or naturally through borrowers paying off loans that are in the MBS).

Thus, interest rates, which obviously include mortgage rates, will continue to fluctuate and are out of Orion’s or any lender’s control. But what is within our control are Orion’s service levels and Orion’s products, both of which continue to change and improve based on the needs of our valued broker clients.

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