However, all that might be changing. Interest rates on 30-year mortgages fell to 3.82% on June 7, continuing a trend that has seen rates plunge by more than a full percentage point since last November. The current figure is the lowest level for the 30-year mortgage since September 2017, and the weekly move was a sharp drop from 3.99% the week before. The movements in interest rates reflected the big changes in market sentiment with respect to the expected future course of monetary policy from the Federal Reserve.
The Fed doesn’t directly control mortgage rates for the most part, as its most important lever for influencing the bond market is through its control of short-term interest rates. Yet the bond market pays close attention to the central bank’s decisions, and with an abrupt shift in strategy that’s appeared in the past several months, bond investors have had to adjust accordingly. In particular, whereas most bond investors previously expected the rate increases that the Fed has implemented over the past two years to continue throughout 2019, they now see a greater likelihood of interest rate cuts in the near future in response to weakening economic activity.
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