Dispelling The Myth: What Does It Mean When The Fed Raises Interest Rates?

Updated: Feb 7


We'll dive into some of the news that's going on right now.: Interest rates

You know, I just mentioned on my last podcast that the thing that we really need to pay attention to this year is the interest rate.

I want first to dispel the myth of what it means when the fed raises the rate.

We just heard the fed raise the rate to four percent, right? That doesn't mean mortgage interest rates are at four percent. So, what does it mean when they say the fed raises the rate, and how does that impact the interest rates?

The Federal Reserve is predicted to raise interest rates four times in the next calendar year and what happens is, the fed rate, that we all call it, “the fed rate”, is the shortest-term interest rate. It is the overnight rate that banks use to lend money to and from each other.

So, when the Federal Reserve increases the rate, it doesn't mean that interest rates are going up. In fact, the fed is something completely different from where mortgage rates are calculated and what drives interest rates mortgage interest rates higher or lower.

Your mortgage rate is typically the longest-term interest rate. 15-year, 25-year, 30-year mortgage and what ends up happening is most clients get really scared when they hear that the fed is going to boost up the fed rate. It has nothing to do with your interest rate. It's completely different. What is going to drive interest rates up or down is going to be the bond market. What drives interest rates from the bond market up or down are economic news events that we're all experiencing right now and that we're hearing about right now. The worst thing that can happen for mortgage rates is what we've been dealing with for the last several months: inflation. Inflation is the enemy of mortgage rates. Inflationary concerns will drive interest rates higher. It just stops there.

To know more about real estate marketing updates, tips, and advice, you can check out this video https://bit.ly/3Gfjt82 or visit Kyle Kelly’s YouTube channel: https://bit.ly/3dOQxI4 and Podcast: https://soundcloud.com/kkellyny/sets/on-the-house-1






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