The Fed cut interest rates but mortgage costs jumped. Here’s why

Homebuyers touring a house with a real estate agent.

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The Federal Reserve on Wednesday cut interest rates for the third time in 2024. Despite the move, mortgage rates increased.

The 30-year fixed rate mortgage spiked to 6.72% for the week ending Dec. 19, a day after the Fed meeting, according to Freddie Mac data via the Fed. That is up from 6.60% from a week prior.

At an intraday level, the 30-year fixed rate mortgage increased to 7.13% on Wednesday, up from 6.92% the day before, per Mortgage News Daily. It notched up to 7.14% on Thursday.

The Fed’s so-called dot plot this week showed fewer signs of more rate cuts in 2025, according to Melissa Cohn, regional vice president of William Raveis Mortgage in New York.

The dot plotwhich indicates individual members’ expectations for rates, showed officials see their benchmark lending rate falling to 3.9% by the end of 2025, equal to a target range of 3.75% to 4%. After the latest rate cut, it is currently at 4.25% to 4.50%.

When the Fed made its first rate cut in September, it had projected four quarter-point cuts, or a full percentage-point reduction, for 2025.

“That, in conjunction with Trump’s desired policies on tariffs, immigration and tax cuts — which are all inflationary — spooked the bond market,” Cohn said.

Mortgage rates also tend to move in anticipation of what the Fed is going to do in its upcoming meetings, said Jacob Channel, a senior economist at LendingTree.

For instance, mortgage rates declinedthis summer and early fall, in anticipation of thefirst interest rate cutsince March 2020.

Therefore, mortgage rates might not do “anything particularly dramatic” in the face of the Fed’s actual meeting, he said.