For more proof that the Fed does not control mortgage rates, consider this: In the immediate aftermath of the Fed's decision to lower the Fed Funds Rate by 0.50%, mortgage rates improved by about 0.25% on average.
But, in the two days since, mortgage rates have not only given back those gains, but have climbed to their highest levels of the month.
This is because post-rate cut, the U.S. dollar is trading at all-time lows against the Euro and other currencies. Therefore, buyers of dollar-denominated securities such as mortgage bonds are getting less return for their investment.
When an investment loses its return, buyers tend to become sellers and that pushes the supply-and-demand balance to the supply side.
Additional supply of mortgage bonds drives down prices and increase mortgage rates.
It can be complicated web, of course, but consider it to be additional evidence that the Fed Funds Rate and mortgage rates are unrelated.
