Fed “Cuts Rates;” Mortgage Rates Shoot HIGHER In Response

It is sometimes hard to be this right about things…if only because I was so wrong about predicting a recession in 2023. ??

BUT I was very right about rates going UP after the Fed made its so-called “surprise 50 basis points rate cut” announcement yesterday.

Fortunately, we were able to convince most of our clients that the market had already priced in or accounted for the cut long before yesterday’s announcement – and as a result we have had three record weeks in a row for loan locks.

This is why buyer/borrower education is so important. We had both buyers and refi candidates on the fence and they’d still be there if we had not sent them this blog/messaging over and over: 3 Reasons Mortgage Rates Don’t Always Fall When The Fed Cuts Rates.

I know this because I know many other LOs whose loan volume has not picked up. Their clients remain on the sidelines and will be sorely disappointed to find out that rates went UP today.

Reminder to agents: This is why constant client education with original content is so important. We keep our pre-approved buyer list apprised of everything that is taking place in the markets.

LO’s Marketing Yesterday: “Rates Finally Dropped; Now Is the Time to Buy!” LOL

An LO’s email campaign yesterday (I’m on her mailing list), said “rates finally dropped; now is the time to buy.” I got the email right when lenders were sending over “rates increased” announcements, and I laughed, as the LO was about two weeks too late.

What Would Mortgage Rates Have Done if the Fed Only Cut Rates 25 Basis Points?

Mortgage rates would have still gone up, but maybe not as much, as some of today’s rate increases are a result of money moving into stocks due to the big cut (more on that below). But, more importantly, it would not have been a big deal either way because investors know that the Fed only controls short-term rates in any case, and they do not influence long-term rates that much.

Jeff Snider: “Fed Panicked into 50 Basis Point Rate Cut”

Jeff Snider is doing victory laps, as he predicted the 50 basis point cut. He insists that the Fed is panicking over the data that is surfacing in the labor market – Profound Implications from Fed’s Rate Cut Decision. He believes that the data is screaming recession… with more rate cuts to come.

“10 of the Last 14 Rate Cuts Led to Recession…”

The above headline was from this comical post on X by Nick Gerli (the man who continually predicts housing meltdowns). The comments below his post shred his analysis for confusing correlation with causation; the Fed cuts into weak economic conditions and it is those conditions (not the Fed’s cuts) that cause recessions.

Steve Hanke: “Fed’s Rate Cut Will Not Cause Inflation!”

X is filled with inflation predictions today, as a result of the big rate cut. But famed economist Steve Hanke was on David Lin’s excellent show yesterday – Fed’s 50 Bps Rate Cut: Will It Trigger Inflation AND A Hard Landing? – explaining that it will definitely NOT result in inflation. He again made his point that only an increase in the M2 money supply will result in inflation. He further stated that a recession is “baked in the cake.”

Stocks Are up Today – “Woohoo, We’re Saved!”

Stocks hit new record highs today, as the stock market often responds to large rate cuts like this – as if low rates will save the day, irrespective of economic conditions. While excessively low rates can and do drive asset prices higher, they don’t always, as I’ve explained in previous blogs. Stock investors are not as prescient as bond investors – who are still predicting a recession (indicated by the current yields). Rates are higher though partially because some investors moved from bonds to stocks.