What Does the Federal Reserve Have To Do With Interest Rates?
So what does the Federal Reserve have to do with interest rates? Alright, so you're sitting at home on your couch watching TV with a glass of your favorite Cabernet. All of a sudden, you see this breaking news bulletin scroll across the bottom of your screen. "Federal Reserve lowers interest rates to 0%." Now, put the glass of wine down before your get too excited. This news may not cover the cost of replacing the rug you may have ruined if you drop it.
When the Federal Reserve announces interest rates are at 0%, this doesn't mean interest rates are at 0%. This also doesn't mean mortgage rates are lower or higher today than they were yesterday.
The Federal Reserve controls the Fed Funds Rate, which is a short-term interest rate banks charge each other to borrow money overnight. Not the interest rate banks charge consumers to borrow money. The cost or interest rate to borrow money is based on the same fundamentals that dictates the price of a Big Mac and fries at McDonald's.
Even though the Fed Funds Rate can indirectly affect mortgage interest rates by making money cheaper, there is no direct relationship. If you want to accurately determine the direction of current mortgage rates, you would need to follow the performance of mortgage backed securities.
For more information on mortgage interest rates, check out my FAQ on how to shop for the best rate.
I'm Don Anfuso, your Mortgage Professional for Life.
When the Federal Reserve announces interest rates are at 0%, this doesn't mean interest rates are at 0%. This also doesn't mean mortgage rates are lower or higher today than they were yesterday.
The Federal Reserve controls the Fed Funds Rate, which is a short-term interest rate banks charge each other to borrow money overnight. Not the interest rate banks charge consumers to borrow money. The cost or interest rate to borrow money is based on the same fundamentals that dictates the price of a Big Mac and fries at McDonald's.
Even though the Fed Funds Rate can indirectly affect mortgage interest rates by making money cheaper, there is no direct relationship. If you want to accurately determine the direction of current mortgage rates, you would need to follow the performance of mortgage backed securities.
For more information on mortgage interest rates, check out my FAQ on how to shop for the best rate.
I'm Don Anfuso, your Mortgage Professional for Life.
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