Q&A: Senné’s Andy Elliot on the state of interest and mortgage rates

Andy Elliot, Director of Debt & Structured Finance at Senné, shares his view on the current state of interest rates and mortgage rates in the U.S.

Q: What have been the main influences of mortgage rate hikes in the past? 

A: Mortgage rates have generally been on a downward trajectory for the last 30 years, starting with the oil crisis of the early 1980’s (see graph below). Mortgage rates (and interest rates in general) are closely related to the underlying federal funds rate, which has also been on a downward trajectory since the early 1980s (see other graph below). The Federal Reserve sets their rate by accounting for a number of major factors that we often discuss – the big two being inflation and the strength of the labor market but other factors like liquidity, and foreign exchange rates playing a minor role as well. In fact, the oil crisis of the 1980s made Paul Volcker, the Fed Chairman at the time, realize that controlling inflation should be the primary focus of the Federal Reserve.

Q: What is the historical data for mortgage and interest rates compared to the current state?

A: The above charts serve to illustrate the changes over time. 

Q: What are some predictors that today’s rates will continue to climb?

A: If inflation stays high and/or the Federal Reserve continues to raise rates.

Q: What are some wild card events that could push rates down?

A: A major economic or political event. The Federal Reserve typically responds to uncertainty by making it cheaper to borrow, and therefore increasing demand for money. As we’ve all seen, rising rates and inflation have had a direct, inverse effect on the stock market. So far, the Federal Reserve has made it clear that tempering inflation through higher rates is more important right now than buoying the stock market and asset prices with cheaper rates.