The Feds 2nd March 2020 Rate Cut is proactive economic support as the Coronavirus impact expands. While mortgage rates may drop, the Fed Funds Rate is not why. Smart move is – be ready for a mortgage rate improvement.
Different Rates React to the Same Thing
The Fed voted on a 2nd March 2020 Fed Funds Rate cut on Sunday March 15th. Their goal – plug future holes poked in the US economy by the Coronavirus.
A second set of rates often falling during economic uncertainty are Fixed Mortgage Rates. Mortgage rates move with mortgage bond pricing. Bond pricing often improves when Wall Street perceives economic slippage. This then causes a drop in mortgage rates.
Ultimately, the Fed Funds Rate and Mortgage Rates both can fall for the same core reason – economic worries. However, the movement is independent:
- Fed Funds Rate Movement: Group of elected officials vote to move this rate. The same group must vote again for further movement.
- Fixed Mortgage Rate Movement: These rates move constantly due to the dynamics on Wall Street.
Ultimately and technically, neither rate moves the other. However, sometimes technicality takes a back seat to reality. Especially when cheaper housing payments are possibly in the balance.
2 Ways to the Same Place
Theory is important. However, reality is important too. While the vehicle driving mortgage rates lower is different from that which carries the Fed Funds Rate further south, if both move low and you can buy or refinance at a lower rate – does theory matter?
Since these 2 rates have been seen running as a 3 legged race team, preparedness to pounce matters most. What’s the worst that getting positioned now can do? Maybe we get surprised if the Fed Funds Rate and Mortgage rates go in different directions. This has happened more before and is possible. But why risk missing that window of historical low rates when there is no down side to being ready?
However, the ready to pounce group stands a chance the same thing pushing the Fed Rate down also knocks mortgage rates a few ticks lower. After-all, despite having no direct connection – both fixed mortgage rates and the Fed Funds rate tend to drop when economic concern runs wild.