The following is a copy and paste from a previous piece that always bears repeating on Fed day. If you’ve seen it before, there’s nothing new here. If you haven’t, or if you are expecting an immediate and equivalent change in mortgage rates when the Fed announces today’s rate hike, read on! NOTE: none of the following is meant to suggest that today’s Fed communications will not have an impact on rates. They absolutely can and almost certainly will. The point is that the Fed rate hike itself has no functional connection to mortgage rates (except in the rare cases of certain lines of credit that are based on the PRIME rate which is indeed linked to the Fed Funds Rate). — There’s a common misconception that the Fed “sets” (or hikes/cuts) mortgage rates directly. Even among people who know better, there is often a belief that changes in the Fed Funds Rate (the thing the Fed actually hikes/cuts) translate in some direct way to changes in mortgage rates. No… What is the Fed Funds Rate? The Fed Funds Rate is a target set by the Fed for interest charged by big banks to lend money to each other on an overnight basis. It has several policy tools that ensure the target is reliably hit within a quarter of a percent margin (one reason that the Fed communicates rate targets in 0.25% windows). In other words, the Fed “decides” (for lack of a better term) what the shortest-term loans will cost. From there, the market decides what longer term loans will cost. Whereas the Fed Funds Rate pertains to loans that last 24 hours or less, the average mortgage lasts 3-10 years depending on the housing and mortgage environments at any given moment in history.