Why mortgage rates could fall as the Fed hikes
One of the main reasons why is that history has typically shown that mortgage rates don’t always move in the same direction as a Fed rate action. With the 10-year Treasury yield soaring in recent weeks, the hope was that rate hikes from the central bank would actually cause those yields to fall, which they have so far on Thursday.
Melissa Cohn (pictured top), regional vice president at William Raveis Mortgage, said a rate hike can work in the mortgage market’s favor under the right conditions.
“Rate hikes can be good for the mortgage market, because if the bond market feels that the Fed is fighting inflation and doing what they can and having any sort of impact, bond yields will rally, bond yields will come down, and mortgage rates will go down,” Cohn told Mortgage Professional America. “There are examples in history in the past 20 years showing, I think it’s like over three times when the Fed was in a rate-hiking cycle, that mortgage rates actually ended up lower.”
Watching the bond market
Brokers don’t have to look too far into the past to see when mortgage rates and Fed rate decisions moved in opposite directions.
“In 2025, when the Fed was cutting rates, mortgage rates went up,” Cohn said. “So the direction of the Fed and Fed funds rates has a direct impact on the prime rate and any borrowing that’s impacted by the prime, such as a home equity loan, credit cards. Those are all impacted in the opposite direction. But mortgage rates can be very contrary to what the Fed does. It’s all about the bond market and its anticipation and sensitivity to inflation.”
