“I don’t know how to predict the stock market, I don’t know how to predict interest rates, I don’t know how to predict business. All I know is if I buy the right kind of business at the right price with the right people I’ll do well over time.” – Warren Buffett
That wisdom is a useful starting point as the U.S. economy digests the Federal Reserve’s most recent policy move. On September 17, the Fed cut its benchmark rate by 25 basis points, lowering the target range to 4–4.25 percent. But instead of seeing borrowing costs ease, mortgage rates went up. The 30-year fixed rate climbed from 6.10 percent last week to 6.37 percent today.
So why did mortgage rates rise after a Fed cut? And what does it mean for affordability, markets, and investors?
The Fed’s Decision and the Policy Debate
The Fed cut rates to support a slowing labor market. Unemployment has risen to 4.3 percent, and revisions showed fewer jobs were created than previously reported. U.S. Treasury Secretary Scott Bessent criticized Chair Jerome Powell for being too cautious. He argued that the Fed should have cut 100 to 150 basis points to stimulate growth.
Fed officials pushed back. Atlanta’s Raphael Bostic and St. Louis’s Alberto Musalem pointed to persistent inflation at 2.9 percent, still above the 2 percent target. They also highlighted risks from tariffs under the Trump administration, which could drive prices higher. Their message: cut too aggressively, and the Fed risks fueling stagflation — a damaging mix of weak growth and rising inflation.
Why Mortgage Rates Moved Higher
Many assume that when the Fed cuts interest rates, mortgage rates drop. In reality, mortgage rates are tied less to the Fed’s short-term rate and more to long-term forces like:
- Inflation expectations
- Global demand for U.S. Treasury bonds
- The size of U.S. federal deficits
Because inflation is still above target and deficits remain high, investors demanded higher yields on long-term bonds. That pushed mortgage rates higher, even as the Fed lowered short-term borrowing costs.
The outcome: the market rejected the Fed’s cut, and households face higher mortgage costs as a result.
Why Today Feels Different
Every generation thinks its mortgage rates are the worst. In the 1980s, rates peaked above 15 percent. But home prices then were much lower compared to incomes. Today, the issue is the opposite: even at 7 percent, mortgages feel crushing because home prices are near record highs relative to household earnings.
The difference adds up. A 1% shift in mortgage rates changes the lifetime cost of a loan by tens of thousands of dollars. That is why affordability is more strained today than in prior cycles.
Some argue that lower mortgage rates are the solution. But with inflation at 2.9 percent and deficits large, the only sustainable adjustment may be through lower home prices, not cheaper credit.
What It Means for Investors
For investors, the lesson is not to obsess over whether Powell or Bessent is right. Markets will continue to debate whether the Fed should cut faster or slower. What matters is how you position your portfolio in the face of uncertainty.
- Expect volatility. Growth and inflation are pulling markets in opposite directions.
- Focus on quality. Companies with strong balance sheets and disciplined capital allocation are best positioned to endure uneven cycles.
- Plan liquidity carefully. Rising unemployment and persistent inflation make it vital to hold reserves, without compromising long-term compounding.
There is also a market precedent worth noting. When the Fed has cut rates within 2 percent of stock market all-time highs, the S&P 500 has finished higher over the following year in 20 out of 20 cases. History doesn’t guarantee results, but it reminds us that equity markets often respond differently than housing.
The Takeaway
The Fed will continue to walk a tightrope between unemployment and inflation. Mortgage rates may remain elevated despite cuts. Housing affordability will stay strained. Equity markets will remain volatile.
But as Buffett reminds us, long-term success does not depend on predicting rates. It comes from owning the right assets at the right prices, and having the discipline to hold them.
Disclaimer: Nothing here should be considered investment advice. All investments carry risks, including possible loss of principal and fluctuation in value. Past performance is not indicative of future results. Finomenon Investments LLC cannot guarantee future financial outcomes.
