What Does a Fed Cut Mean?

The Federal Reserve just lowered its target for benchmark interest rates by .25%, which was the third Fed cut this year. These three cuts have been the first of their kind in over a decade, but what do they do, really? Like many people this week, you might be wondering whether now is suddenly a better time to refinance.


Image result for federal reserve


Any time there is a Fed rate move, we see a huge uptick in refinance volume. On the business side, this is undebatable. Consumers truly believe that the rate cut will have an immediate effect. This is typically the result of consistent Fed cut headlines, news stories, and advertisements from mortgage companies using the Fed rate as an informational piece.


Historically, there is no direct correlation between the Fed funds rate and mortgage rates. There have been cases where a Fed rate drop actually leads to immediate mortgage rate increases, and vice versa. The Fed’s job is to promote growth and stability, and they use the Fed funds rate as a tool to assist with the broader scope of avoiding recessions, and preventing huge swings in the U.S. market. In other words: these are not overnight changes.


More often than not, a rate drop by the Fed is already priced in to the mortgage rates and MBS securities (ex. If 95% of the investors on Wall Street predict that the Fed will cut rates, then it is already taken into account weeks, or even months in advance!) We see similar reactions to economic reports relating to unemployment, geopolitical influence from the China trade war, Brexit, Middle East conflict, etc. 


While a Fed interest rate cut does seem to ignite a frenzy of loan applications, it doesn’t change the way rates have already trended. Now is probably as good a time as any to refinance. Rates are still near three-year lows after all. If it makes financial sense for you, evaluate your options! The most important thing is to always keep your options open. Keep informed about major market movers, the biggest indicator being the 10-Year Treasury Yield. If that yield trends up, so do rates.

Speak to a loan officer to find out if a refinance could benefit you. Head over to our website to receive a quote. You don’t even have to speak to a loan officer there, and you can check rates any time of the day multiple times.


Jason Vondrak

Company President

Prospect Financial Group

948 Garnet Avenue

San Diego, CA 92109

NMLS: 349089 | BRE: 01837707

Jason Vondrak has been in the mortgage industry since 2004 and co-founded the mortgage brokerage Prospect Financial Group in 2006 in San Diego, California. Today he serves as President and CEO of Prospect Financial Group and the president and founder of Prospect Property Group, a real estate development company, established in 2012.

"I've had the privilege to serve in an industry that exists to ensure homeownership remains among the top priorities of government and citizens alike. Over the years, it has been a pleasure working alongside homeowners, real estate professionals, and business associates combining efforts and teaming up to help homeowners realize the dream of home ownership."