Fed's Expected Interest Rate Cut

The Feds are meeting July 30 and July 31 and are largely expected to lower interest rates.  But that doesn't necessarily equate to a decrease in mortgage interest rates.

When the Federal Open Market Committee "lowers interest rates," they are decreasing the federal funds rate, the interest rate at which a bank lends funds maintained at the Federal Reserve to another bank overnight.

The higher the federal funds rate, the more expensive it is to borrow money.  The federal funds rate is considered the base rate that determines many other interest rates and indices in the US economy.  For example, when the federal funds rate decreases, the prime rate decreases.  And the prime rate determines interest rates on things like credit cards and home equity lines of credit.

But the prime rate is a short term index.  Mortgages are more sensitive to the bond market and yields on US Treasury notes.  Mortgage interest rates may decrease in anticipation of the Feds decreasing rates.  But they often increase following a Fed decrease.

The exact impact won't be known until after the Feds end their meeting and hold their press conference on the afternoon of July 31.  In the meantime, I'll be watching other influences on mortgage interest rates such as trade talks with China and indications of inflation.