Fed lowers rate, but 30-year mortgage goes up

You’d think that with the significant interest rate cuts being executed by the Federal Researve Bank, that banks (who are the beneficiaries of lower federal rates) would lower their mortgage rates. But not so. As Dean Baker, of the Center for Economic and Policy Research reports:

“This week’s data shows a small rise in the average interest rate on a 30-year fixed rate mortgage to 5.61 percent from 5.6 percent last week. The rate had been at 5.49 percent two weeks ago. We now seem to be in the perverse situation where reductions in the federal funds rate lead to higher long-term rates. This means that further rate cuts, rather than being a source of economic stimulus, may actually depress the housing market and therefore have a negative impact on growth.”

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