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Mortgage Rates, the Fed, and Quantitative Tightening

Most people have the message that rates are just going to stay high moving forward and it may seem like that without the Federal Reserve announcing, pointedly, a rate cut. However, they did announce something most people missed that will affect rates, even without there being a cut.

Since mid 2022, the Fed has been involved in a process referred to as quantitative tightening (QT) in order to decrease inflation by raising the costs of borrowing money. This is the exact opposite of quantitative easing (QE), which is what they were doing prior to encourage spending after the slow during lockdowns, and part of the reason rates were so low in 2021.

Quantitative Easing

When inflation is low but during a slow economic growth period, the fed buys long term assets to increase money supply and confidence in the economy.

The introduction of new money into the money supply by a central bank in order to stimulate economic activity

Quantitative Tightening

When soaring inflation hits the market, the fed begins selling off of its assets to decrease money supply and increase interest rates to slow inflation.

A policy applied by central banks to decrease the amount of liquidity or money supply in the economy. 

When inflation is bad, the Fed wants rates to go higher to slow spending in an effort to bring inflation down. Now, inflation data is coming down, but not enough to “cut rates” so to speak. However, it is enough to start pulling back on the QT by more than half. In time, this will help start bringing down rates on mortgages and even car loans. So, even though we did not get a “rate cut” we still got good news on rates moving forward!


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