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Q&A: The Fed cut interest rates. Why are mortgage rates going up?

Next Fed meeting in December

Falling interest rates are good news for car buyers and people with credit card debt, but after the presidential election, mortgage rates are on the rise. 

CBS News business analyst Jill Schlesinger says that’s because mortgages are influenced more by the bond market than the Fed.

News 6 anchor Lisa Bell spoke with Schlesinger to break down exactly what the Fed’s cut means for consumers and what could happen next.

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Bell:  “Let’s start off with how much was cut this week. It was a quarter of a point. Some people may have been hoping for a bigger cut, like half a percentage point, which is what the Fed did last time. So why the lower cut this time?”

Schlesinger:  “You know, at the September meeting, Federal Reserve Chair Powell said that the policymakers, they wanted to get a quote, “good, strong start.” It was the first cut after years of having high interest rates. They started with this half of a percentage point cut and that’s larger than what we had seen in a while. So what we saw at this meeting yesterday was the Fed telling us that economic growth is solid. The labor market might be easing some, but you know, the problem is, the inflation rate is still higher than the central bank’s target. So they kind of reverted back to what I would call their more normal or customary quarter of a percentage point cut at this meeting.”

Bell:  “And we know after the last cut, mortgage rates really did not change a whole lot.  For people who may want to buy a home or refinance their mortgage rates, should they expect rates to go down after this latest move?”

Schlesinger:  Oh, dear. I hate to be the bearer of bad news on this. You know the Fed rates, those are short-term in nature, and so that means the rate on, say, a credit card balance or a new auto loan or even a new business loan. That’s a rate that you might see drop a little bit. But mortgage rates, they are linked to longer-term bonds.  Bonds, say that 10-year bond with the government that is based on supply and demand, and what we have seen is that since the election, the yield, the interest rate on a 10-year treasury actually went up.   The reason that that is happening is that there is some worry that some of the Trump administration policies could lead to higher debt and deficits or maybe be inflationary, and so as a result, we have not seen progress on a 30-year mortgage rate. Such a bummer for people looking for a home. I’m sorry, but that’s probably going to persist for some time.”

Bell:  “Speaking of the new administration, obviously, the Federal Reserve will soon be under the Trump administration. So do we know yet what the fate of Chairman Powell will be once the new administration takes over?”

Schlesinger: “You know, I like to describe Chairman Powell’s relationship with President-elect Trump as it’s complicated. Remember, then-President Trump was the one who plucked Powell off the board to lead the Fed in early 2018 it was his appointment, but later in his administration, he kind of trash-talked Powell while he was still in office, and over the summer, the President-elect did seem to shift a little bit on Powell.  Yesterday, when Jerome Powell was asked directly about whether he would resign his position if asked by the President-elect, Powell looked in the camera and quickly said ‘No.’ And so that means that Chairman Powell will remain as chair until his term ends in May of 2026 at that time, the president can appoint somebody else, but you know, Powell can stay on the board until his term ends, until 2028 his chairmanship over in May of ‘26.”

Bell:  “We do know there is one final meeting this year. What do you expect to happen in December?”

Schlesinger:  “I think we’ll probably get another quarter of a percentage point cut and I don’t see that really going off course unless there’s some strange information if we see a significant slowdown in economic data, then maybe there would be a half. But I think it’s much more likely that there will be a cautious quarter-point cut at the December meeting.”

You can catch Jill Schlesinger on CBS mornings and the evening news with Norah O’Donnell.


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