Advanced Fiscal Literacy For Real Estate Professionals
- The Fed Funds Rate is a fair proxy for economic health.
- When the economy is growing, the FFR rises to fight inflation.
- When the economy is slowing, the FFR falls to fight “the absence of inflation” (i.e recession).
- If inflation is the enemy of mortgage rates, the absence of inflation is a friend.
Mortgage rates have fallen since November because the economy is showing few signs of inflation.
Prior to this morning, markets expectations for the Fed’s next action were as follows:
- 42% expected a 0.500% drop (moderate weakness)
- 38% expected a 0.750% point drop (strong weakness)
- 18% expected a 1.000% drop (extra-strong weakness)
This morning, the Federal Reserve lowered the Fed Funds Rate by 0.750%. Mortgage rates are only down slightly.
Here’s why:
- 42% of people had to fix their bets lower on the economy because they didn’t expect weakness like this
- 38% of people already expected this and priced it into mortgage rates
- 18% of people had to fix their bets higher on the economy because they didn’t expect strength like this
The slight movement is mortgage rates is the result of the (42 percent) and the (18 percent) shuffling their positions in mortgage bonds.