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Economic calendar: What’s driving mortgage rates the week of March 14

Fed Chair Jerome Powell Testifies Before Senate Banking Committee
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Mortgage rates are notoriously unpredictable, but they respond reliably to one bit of economic news — rate hikes by the Federal Reserve.

This week’s must-watch economic news comes Wednesday, when the Federal Reserve Open Markets Committee wraps up a March meeting that’s widely expected to bring the first rate hike in years. Fed Chairman Jerome Powell is scheduled to speak to reporters.

In recent months, the Fed has discussed a “taper” of its pandemic-inspired economic stimulus. The Fed has been buying $120 billion in Treasury bonds and mortgage-backed securities every month, but a taper would mean slowing those purchases.

All that bond-buying has helped to keep mortgage rates low. With inflation gathering momentum, market watchers expect the Fed to pull back on bond buying. It’s unclear whether mortgage rates will move at all, though – nearly everyone expects a 0.25 percentage point increase in rates this week, an expectation that has been built into mortgage rates.

A dramatic rise in inflation over the past year has all but forced the Fed to boost rates. Skeptics say the central bank has been slow to respond to the highest inflation in decades.

“With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Powell recently told the House Financial Services Committee.

Under questioning from lawmakers, Powell said he was inclined to support an increase of 0.25 percentage points, or 25 basis points. Also worth noting: Nearly everyone anticipates a small increase, and if the Fed acts as expected, mortgage rates might not respond at all.

The Fed doesn’t directly dictate mortgage rates, and the calculus behind how much you pay for a home loan is complicated. But here’s one easy rule of thumb: The 30-year fixed-rate mortgage closely tracks the 10-year Treasury yield. When that rate goes up, the popular 30-year fixed rate mortgage tends to do the same.

Rates for fixed mortgages are influenced by other factors, such as supply and demand. When mortgage lenders have too much business, they raise rates to decrease demand. When business is light, they tend to cut rates to attract more customers.

Rates ultimately are set by the investors who buy your loan. Most U.S. mortgages are packaged as securities and resold to investors. Your lender offers you an interest rate that investors on the secondary market are willing to pay.

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Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.