The Federal Reserve cut short-term interest rates by 25 basis points. However, mortgage rates have continued to rise.

The average rate for a 30-year fixed-rate mortgage jumped 11 basis points in the week ending Nov. 7, to 6.86 percent, according to rates provided to NerdWallet by Zillow. One basis point is one hundredth of a percentage point.

Observers struggle to understand why rates have increased. THE October Jobs Reportreleased on November 1, showed weaker employment gains than expected. Normally, mortgage rates would fall, or at least stabilize, in response to a disappointing jobs report. But the 30-year mortgage has increased slightly.

The markets could have concluded that the poor labor market results in October came from temporary factors: strikes and business closures caused by hurricanes Helene and Milton. In this case, investors concluded that people would soon return to work and that low employment numbers did not portend a faltering economy. This reasoning gave mortgage rates the green light to continue climbing.

This week’s rise in mortgage rates marked the continuation of a brutal seven-week period in which 30-year mortgages rose by nearly a percentage point. It increased from 5.89% in the week ending September 19 to 6.86% in the week ending November 7.

Mortgage rates soared even as the Fed cut the overnight federal funds rate twice: by half a percentage point on September 18 and by a quarter of a percentage point on November 7 . This shows that mortgage rates sometimes zigzag when the Fed zags. . Not usually, but sometimes.

The disconnect between the federal funds rate and mortgage rates comes from their different durations. Banks pay the federal funds rate on the money they borrow for one night. Homeowners pay their mortgage rate on the money they borrow for up to 30 years, or about 11,000 nights.

Long-term economic prospects don’t matter much for an overnight loan, but they are very important for a 30-year mortgage. Optimistic economic expectations are pushing mortgage rates higher. The rise in rates this fall reflects this favorable outlook.

THE Federal Reserve”s recent management contributes to this optimism. Inflation has eased, moving closer to the Fed’s 2% target. Meanwhile, total economic output grew at an annual rate of 2.8% in the third quarter, according to the Bureau of Economic Analysis.

“Recent indicators suggest that economic activity has continued to grow at a solid pace,” the Fed said in a statement. “Since the start of the year, labor market conditions have generally improved and the unemployment rate has increased but remains low. Inflation has progressed towards the Committee’s 2% target but remains somewhat elevated. “

The Fed wants to obtain inflation under control while avoiding a recession: a difficult task to achieve known as a soft landing. The central bank has increased interest rates in 2022 and 2023 to contain inflation. He cut the overnight rate at his last two meetings to support economic growth and avoid a recession.

Donald Trump’s victory contributed to rising mortgage rates due to what a Wall Street Journal headline called an “epic post-election rally.” The article exclaims: “Rarely has Wall Street been so excited about an election.” As the election results came in, the exaltation of the investor class manifested itself in higher yields on government debt. Mortgage rates followed.

“Bond yields are rising because investors expect Trump’s proposed fiscal policies to widen the federal deficit and reverse the rise in inflation,” said Lisa Sturtevant, chief economist at Bright MLS, a stock exchange. data of properties for sale in the Mid-Atlantic region.