When the Fed expectedly raised its benchmark Federal Funds Rate 0.25 percent at its March 14-15 meeting, stocks and mortgage bonds both improved following the news.
The Fed's read on inflation and its decision to maintain its balance sheet of existing mortgage bonds helped bonds rally. Meanwhile, stocks responded favorably to the news that the Fed is planning two additional hikes this year, eliminating some uncertainty.
The Fed Funds Rate, with a new target rate range between 0.75 to 1.0 percent, is the rate at which banks lend money to each other overnight and is not directly tied to consumer products like purchase or refinance home loans. Instead, home loan rates are tied to mortgage bond market performance. Home loan rates can move lower when mortgage bonds improve and vice versa. The prime rate will eventually have an impact on all lending however, making this still a good time to buy with historically low rates.
