Fed Rate Hikes and Mortgage Rates: A Complicated Relationship

The Federal Reserve's decision to raise interest rates has sparked debate about its impact on mortgage rates. Some argue that rate hikes will help bonds and mortgage rates by signaling the Fed's commitment to fighting inflation.

However, a closer look at historical data suggests that this may not be the case. When the Fed starts a new rate-hike cycle, it typically has an inverse relationship with the 10-year yield, which in turn drives mortgage rates.

The current situation is complicated by ongoing conflicts and trade wars, including the Iran conflict and rising oil prices. These factors have driven up diesel prices, which have a significant impact on food costs, making inflation a major concern for the Fed.

In this environment, it's unlikely that a single rate hike will be enough to curb inflation or improve mortgage rates. In fact, history suggests that new Fed rate-hike cycles are often followed by higher bond yields and mortgage rates, unless the economy slows down or there is resolution on trade-related issues.