Why mortgage rates continue to rise despite Fed rate cuts

Recent interest rate cuts have brought relief to credit card, personal loan and auto loan borrowers, but homebuyers are unlikely to catch a break as mortgage rates continue to rise.

Following Donald Trump’s victory in the presidential election, interest rates on 30-year fixed-rate mortgages briefly rose sharply, settling at 6.98% on Thursday, according to Mortgage News Daily.

The rate has risen nearly 1% since September, even after the Federal Reserve cut its benchmark interest rate twice by a total of 0.75%, including a 25 basis point cut announced Thursday.

While mortgage rates often move in lockstep with the Fed’s key interest rate, they are more directly tied to 10-year Treasury yields. These yields tend to rise when investors expect stronger economic growth and higher inflation – even if the Federal Reserve cuts interest rates.

“Since mid-September, there have been a number of economic data reports that show the economy is stronger than expected,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York. “When people have jobs and earn money, they spend it, and that is inflationary.”

The rise in mortgage rates also reflects market expectations that “President-elect Trump will accelerate budget deficit growth faster than Vice President Harris,” said Michael Nourmand, president of brokerage firm Nourmand & Associates in Los Angeles. Trump’s proposed tariffs on imported goods could also spur inflation by raising prices, he says.

Mortgage rates are expected to fall slightly in the coming months but are expected to remain around 6% well into 2025, according to forecasts by major mortgage lenders and industry groups – nearly double what they were three years ago.

But if Republicans gain control of the presidency and both houses of Congress, fewer barriers to new spending could push bond yields higher, with investors anticipating higher borrowing and inflation risks, according to Mortgage News Daily.

Either way, “continued deficit spending combined with discussions about additional tariffs on imports are likely to keep (mortgage) rates high through the end of 2024,” Nourmand says.

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