The fact that the Fed has lowered overnight rates a few times in recent months has had zero effect on mortgage rates. In fact, mortgage rates have actually gone up. Orion’s brokers tell us that for many borrowers, this is hard to understand, but it is yet another example of media misinformation that brokers and Orion AEs work to correct, and help your borrowers understand.

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The Fed sets a target (the Fed Funds rate) and attempts to control the rate which banks charge other banks to borrow money for 24 hours. This has near-zero effect on the 10-year Treasury or mortgage rates. The same economic conditions, however, impact short term and long-term rates, as well as the stock market.

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As we move through January, our brokers know that it is a tricky environment for mortgage borrowers to navigate. In 2024 mortgage rates actually dropped and then moved higher. Inflation also trended downward in 2024, though the decline wasn't significant.  A year ago, the annual inflation rate stood at 3.1%, which dipped over the summer and ticked back up in November to settle at 2.7%, according to the latest Consumer Price Index. Mix in a stronger-than-expected jobs report in December, and you can understand the Fed's decision to cut rates and the potential for lower mortgage rates.

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Brokers know that the Fed's decisions aren't the only indicator of where mortgage rates are headed. One benchmark for mortgage rates is the ten-year treasury, and yields, unfortunately, are the highest they have been in over a year, and that typically means we will see rates continue to tick up. There are inflation concerns from tariffs, global unrest, and data showing inflation isn't yet under control. Fiscal policy, expected trade policy, and the strength of the U.S. economy are also factors that influence interest rates.

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Mortgage rates haven't fallen in line with the Fed's rate cuts because they depend on factors beyond the agency's benchmark rate, such as the economy and 10-yearTreasury bond yields. These above-average bond rates are one reason mortgage rates remain high. They raise borrowing costs for lenders by increasing there turns investors are looking for on mortgage-backed securities, which lenders then pass on to borrowers.

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We will wait for the Fed to signal it believes inflation is well under control. Brokers will continue to watch inflation, jobs, and consumer confidence reports, to gauge economic trends. For now, patience may be necessary. Experienced brokers know that the rates we had in 2020 and 2021 were not “normal” and mortgage rates in the 6% and 7% range could persist for some time. Fortunately, Orion has some superior programs to help your borrowers regardless of rate: ask us!