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The US Federal Reserve (Fed) on Wednesday cut interest rates for the third time in 2024. Despite the policy, mortgage rates rose.
According to Freddie Mac data via the Federal Reserve, 30-year fixed-rate mortgages jumped to 6.72% in the week ending Dec. 19, the day after the Fed meeting. This is an increase from 6.60% the previous week.
At an intraday level, 30-year fixed-rate mortgages were trading at 7.13% on Wednesday, up from 6.92% a day earlier, according to Mortgage News Daily. It rose to 7.14% on Thursday.
The Fed ‘surprised the bond market’
The Fed’s so-called dot plot this week showed signs of further interest rate cuts in 2025 are fading, said Melissa Cohn, regional vice president at William Rabeis Mortgage in New York.
A dot plot showing individual members’ interest rate forecasts showed officials expect the benchmark lending rate to fall to 3.9% by the end of 2025, equal to the target range of 3.75% to 4%. After the latest rate cut, it currently stands at 4.25-4.50%.
When the Fed made its first rate cut in September, it expected four quarter-point rate cuts, or four full percentage point cuts, by 2025.
“This, combined with President Trump’s desired policies on tariffs, immigration and tax cuts, all of which are inflationary, has spooked the bond market,” Cohn said.
Jacob Channell, senior economist at LendingTree, said mortgage rates also tend to move in anticipation of what the Fed will do at its upcoming meeting.
For example, ahead of the first interest rate cut since March 2020, mortgage interest rates declined from this summer until early fall.
As such, mortgage rates may not have a “particularly dramatic impact” in the face of an actual Fed meeting, he said.
Correction: The Fed’s latest adjustments lowered the benchmark interest rate by 0.25 percentage points. A previous version incorrectly documented this move.
