Federal reserve’s change to policy

Here is what the federal reserve’s change to monetary policy on June 15th, 2022, means for mortgage rates. If you’re buying or refinancing a home the information in this article is for you. The Federal Reserve increased interest rates on June 15th by 75 basis points. This is to curb surging inflation and tame what otherwise could be a problematic situation for the broader United States economy.

Mortgage rates have worsened and the Federal Reserve’s change to monetary policy sent the markets into a gyrating tailspin. Which then has produced an improvement in mortgage rates. This is poised to be short-lived as the federal reserve’s comments specifically point to significantly higher borrowing costs going forward throughout the rest of 2022. When the Federal Reserve increases interest rates most people think mortgage rates also rise. That’s just not the case as evidenced by what transpired on June 15th. However, the broader concerns driving mortgage rates are not just inflation. The primary driver of the direction of mortgage rates presently has been the Federal Reserve and what they’re doing with the monetary policy.

If we rewind the clock to 2011 the Federal Reserve at that time, just after the monetary crisis, started buying mortgage-backed securities. They have been buying mortgage-backed securities in the form of a monetary policy called quantitative easing through June of 2022. They have spent millions of dollars on buying mortgage-backed securities and putting the full faith and guarantee of the United States government into our financial system. As a result, mortgage rates during all that time for the most part have been predominantly stable.

The Federal Reserve at this point has shown that they’re now going to start allowing balance sheet runoff to occur. Balance sheet runoff it’s a slow withdrawal from the markets. In other words, a guarantee of the United States government is no longer going to be interwoven into the mortgage-backed securities which support the housing market. As a result, that creates uncertainty in the markets, particularly with bondholders. There’s been a selloff in mortgage-backed securities coupled with soaring inflation not seen since 1994. The Federal Reserve has not increased mortgage rates by as much as 75 basis points as it did on June 15th, 2022, since 1994 when it made that aggressive stance to combat inflation. So, while this move by the Federal Reserve is historical, it is needed to combat inflation as well as hopefully curb the direction of where interest rates are headed.


If you’ve been thinking about buying or refinancing a home and you’re concerned about mortgage rates. Talk to a mortgage professional who can accurately explain to you what’s happening in the market, why it’s happening, and what the best course of action is for you and your family. Start with a no-cost loan quote today!


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