Mortgage Rates Climb After the Fed Cut. Here’s Why—and What Really Matters for Home Buyers.

Federal Reserve Chair Jerome Powell at a press conference in Washington on Oct. 29. (Jim Watson / AFP / Getty Images)

Key Points

• Fixed 30-year mortgage rates increased 0.14 percentage point to 6.27% yesterday following the Federal Open Market Committee meeting.
• Mortgage rate fluctuations may have less impact on a housing market characterized by buyer hesitation and economic uncertainty.
• Federal Reserve Chairman Jerome Powell’s statements on future rate cuts, not current policy changes, influenced the rise in mortgage rates.

The Federal Reserve cut interest rates, and mortgages rates moved higher. Where monetary policy—and mortgage rates—land early next year will be more meaningful for buyers than this week’s immediate reaction.

Fixed 30-year mortgage rates bounced 0.14 percentage point to 6.27% yesterday, according to Mortgage News Daily, in the wake of the Federal Open Market Committee meeting. Rates rose an additional 0.06 points to 6.33% by midday Thursday, the mortgage website showed.

Should the gain hold, it will show up in next week’s widely followed Freddie Mac mortgage rate average. Because of mortgage rates’ prior drift downward, Freddie Mac’s average weekly reading this week fell slightly to 6.17%.

Prospective buyers would prefer low rates—but the gain might not matter much for a few reasons. Even with Wednesday’s rise in rates, levels are more favorable for buyers than earlier this year. A house hunter who exited the market in late July, when 30-year fixed rates were near 6.7%, would still stand to save roughly $100 a month on a $400,000 loan.

And that’s only applicable for buyers actually in the market now. Spring and summer are typically the busiest seasons for housing activity, and when the bulk of transactions take place. By November, home sales cool as homebuying takes a back-seat to the holidays.

Mortgage rate fluctuations could also carry less heft in a housing market restrained by buyer hesitance and uncertainty. PulteGroup, one of the nation’s largest home builders, said earlier this month that “buyer response to the decrease in interest rates was more muted than we experienced in other periods of recent rate declines” as concerns about economic weakness and job stability weighed on buyers’ inclination to purchase.

The 10-year Treasury yield, with which mortgage rates often move, climbed in the wake of the central bank’s decision on Wednesday to reduce its target interest rates and end quantitative tightening.

Neither of those changes were responsible for the move higher in mortgage rates. Rather, it was Federal Reserve chairman Jerome Powell’s messaging about future rate cuts, says Walter Schmidt, FHN Financial’s senior vice president of mortgage strategies.

In a postmeeting press conference, Powell said that “further reduction in the policy rate at the December meeting isn’t a foregone conclusion—far from it.” Odds of a December reduction in the central bank’s target fund rate, measured by the CME FedWatch tool, dropped in the wake of the press conference.

That matters for home buyers because traders’ expectations for the economy in the future, including the path of monetary policy, influences the direction of the popular 30-year fixed mortgage rate. “If he calls into question December, he calls into question the entire path of rate cuts that the market is anticipating,” says FHN’s Schmidt.

That makes economic developments and Fed messaging over the next several months critical for mortgage rates’ direction in the spring. “It’s not all about December, but it is all about rate cuts in the long term,” says Schmidt.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com