November 11

11/11 – In early September, the Federal Reserve cut its federal funds rate by a half-point. This past Thursday, the Fed cut rates another quarter point. Conversely, since bottoming at 3.63% on Sept 16, the 10-year treasury yield has soared to 4.31% (11/8). Similarly, the national average for 30-year mortgages rose from 6.08% on Sept 19 to 6.79% last week. How is it possible rates are moving in opposite directions? The federal funds rate, set by the Fed, is the rate at which banks lend to each other. But 10-year treasuries and mortgages are market driven rates. Both peaked in Oct 2023 and had already fallen by 1.7 percentage points through Sept 2024 in “anticipation” of the Fed lowering its federal funds rate. Now, market rates are reacting to the outlook for improving economic growth and the fact that policies favored by Trump - tax cuts and tariffs – would both expand the deficit and spur inflation.