Michael on Mortgages: What It Actually Means When The Federal Reserve Cuts Rates

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By Guest Writer Michael Curtis, Movement Bank.

The Federal Reserve cut rates! That’s great news, right? 

Sure, but what does it really mean when we hear from news outlets that the Federal Reserve has cut rates? 

Recently and throughout 2019, the Federal Reserve has systematically “cut rates” in what many news outlets and analysts generalize as an attempt to keep the economic engine going strong. 

Let’s dive a little deeper into what it actually means and the purpose behind a rate cut. 

Recently, the Federal Reserve once again cut rates by .25%. 

What the Federal Reserve is reducing when this happens is a short-term interest rate which banks charge each other for overnight lending.

Shorter term loans, or loans tied to the prime rate, are most likely to be impacted by the rate cut. Generally, you’ll see an improvement in rates on credit cards, car loans, home equity lines of credit, etc. 

The reason why the Federal Reserve does this is to make money less expensive for every day usage. They do this in the hopes that consumers are encouraged to spend more money and thereby keep the economy growing. 

Longer term fixed mortgage rates like 30-year, 20-year, 15-year terms are not as immediately impacted by the Federal Reserve’s decision to cut rates. 

However, more broadly speaking, the cut will be felt as the economy shifts and responds to the rate cut. 

So, what does actually drive mortgage rates? 

To name a few key influences, there’s Economic Data like employment rates declining or improving; Geopolitics, i.e., Middle East tension, trade wars with China, improving vs declining European economy; and Inflationary pressure, such as the consumer price index increasing or falling which measures how expensive goods are to purchase.

The Federal Reserve pulling money out of the monetary system or adding money into the system can result in a shift in rates, as can stock market performance and “Acts of God,” i.e., global events such as a hurricane or earthquake.  All of the above can have a direct impact on long-term interest rates. 

In conclusion, when it comes to the Federal Reserve’s announcement that they are cutting rates, think of it more as stoking the fire of our economy. You may not see the direct results of a fire right away, however, with the right amount of stoking you’ll see flames soon enough. 

The same applies with those long term mortgage rates.  It’s the overall health and direction of the economy, up or down, which will result in the movement of interest rates. 


Want to know more about interest rates or have other mortgage related questions? Call or text Michael Curtis with Movement Bank at (803) 389-5256 or email him at michael.curtis@movementbank.com.

Have a real estate related question, concern or need?  Contact Costello Real Estate & Investments’ Jimmy Grappone at Jimmy@CostelloREI.com or (980) 298-9385.

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Jimmy Grappone
Jimmy Grappone is Team Leader with The CLT Life Home Team at Costello Real Estate & Investments. Grappone serves on Waxhaw's Main Street Advisory Board and Autism Strong Foundation's Leadership Team. He is a former president of Waxhaw Business Association and co-founder of Waxhaw's Pups n Pints festival to benefit SCDR. Grappone is an active member of St. Matthew Catholic Church. He and his wife are proud puppy parents to 4-legged son, Jack.