"The Fed doesn't set mortgage rates, but adjusting that key short-term borrowing rate ripples outward to other interest rates. Lately, mortgage lenders have priced in the Fed's cuts before they happen rather than waiting for the central bankers to make a move. This was certainly the case in this cycle; mortgage rates slid lower each week in October and appear headed for 6%. It's been over three years since average 30-year mortgage rates were that low."
"The central bankers have dual long-term goals: maintaining a healthy labor market and a reasonable level of inflation. Usually, when one's a problem, the other isn't. For example, a faltering labor market generally coincides with weaker inflation - an uncertain employment outlook tends to put a damper on consumer spending. But lately, the Fed's two goals have been in tension. The labor market has been showing signs of stress, while inflation remains stubbornly elevated."
On Oct. 29 the Federal Reserve reduced the federal funds rate by 25 basis points, following a similar cut in September. Mortgage lenders priced the Fed's cuts into rates ahead of the moves, pushing 30-year mortgage rates down through October toward about 6 percent, the lowest in over three years. Despite lower rates, mortgage applications for home purchases declined each week in October. The Fed faces a tension between preserving employment and reining in inflation. The central bank's primary tool is the federal funds rate, which can bolster jobs but risks increasing inflation, or slow inflation but risk hiring.
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