The Federal Reserve increased the federal funds rate for the first time since 2018.
In March 2020, the Federal Reserve’s funds rate was reduced to near-zero to ease the economic crisis caused by the pandemic. Yesterday, to help protect against inflation, the Fed announced that the federal funds rate would increase 0.25%.
No, the interest rate on your fixed-rate mortgage did not just increase by 0.25%!
Interest rates on fixed-rate mortgages do not rise as the federal funds rate increases. They have historically followed the 10-year Treasury, which is influenced by a variety of factors, including supply and demand, and how investors react to the Fed’s actions.
The federal funds rate is an interest rate used to guide overnight lending by U.S. banks, but it also influences the prime interest rate, which impacts savings accounts, credit cards, lines of credit, and car, student and other loans. By raising the federal funds rate, the Fed essentially increases the cost of borrowing money, which discourages spending (demand). The goal behind the increase is to reduce inflation.
Please reach out to your Loan Officer for further information or with any questions.