The Fed will hike its key policy rate for the first time since 2018 next week, but mortgage rates aren’t waiting to move higher. By the end of this week, they were as high as they’ve been in nearly 3 years. The mortgage market has long since moved on from caring about next week’s hike. It was a foregone conclusion by mid January. Rather, mortgage rates have been responding to a perfect storm of problems that have combined to push the average 30yr fixed rate higher at its fastest pace since 2013. 2013 actually shares a key ingredient with our perfect storm: Fed bond buying. In response to the 2008 financial crisis, the Fed announced the first of what would be several episodes of large scale bond purchases designed to stave off deflation and encourage economic growth (technically known as quantitative easing or QE for short). QE tends to put massive downward pressure on rates at first , but rates move logically higher after that. The rate spikes are especially sharp when the Fed communicates a QE wind-down that the market wasn’t fully expecting. That’s what happened in 2013 when the Fed officially announced its intent to taper its bond purchases. The resulting rate spike was thus dubbed the ” taper tantrum .” Fast forward to early 2022 and the market endured a similar tantrum. As in 2013, traders knew the Fed wouldn’t be buying bonds forever. In fact, the Fed had already announced tapering in late 2021, but they surprised the market by accelerating the pace of tapering in January. Adding insult to injury, they also reiterated their desire to hold only Treasuries in their bond buying portfolio and not the mortgage-backed bonds that more directly benefit mortgage rates.