What does a Fed rate hike mean for mortgage rates?

Homebuyers face higher borrowing costs after the 30-year fixed rate for mortgages rose last week to its highest level in nearly two years.

Don’t just blame the Federal Reserve.

While it’s true that Fed policymakers on Sept. 16 raised their benchmark for short-term interest rates to combat stubborn inflation, that doesn’t mean they also raised mortgage rates.

The federal funds rate stands at a range of 3.75% to 4%, a quarter percentage point higher than before. That’s generally good news for savers and bad news for borrowers. But unlike high-yield savings yields or credit card APRs, which respond to changes in the Fed’s target range, home loan rates and the federal funds rate are loosely linked.

The Fed does not set mortgage rates. The 30-year fixed rate for mortgages, for example, tends to follow the yield on the 10-year Treasury note. Still, the Fed can influence mortgage rates indirectly if its policy decisions move Treasury yields.

"While I don't expect one Fed meeting to change the housing market overnight, what matters now for Americans is whether their entire financial picture starts to feel more manageable," Mike Miedler, Century 21 Real Estate's president and CEO, said in a note. "Families are…

Original source: https://www.usatoday.com/money/