Rate cuts were supposed to push mortgage rates lower. The opposite has happened.

• Fed easing hasn't led to lower mortgage rates, with the 30-year fixed rate actually rising since the first rate cut.
• Mortgage rates are closely linked to the 10-year US Treasury yield, which have also risen over the period.

The Federal Reserve's jumbo interest-rate cut in mid-September was welcome news to prospective homebuyers, with the expectation that a lower fed funds rate would help push mortgage rates lower.

Instead, the opposite has happened.

Since Fed Chair Jerome Powell lowered interest rates by 50 basis points on September 18, the average 30-year fixed mortgage rate has moved higher, not lower.

According to data from Mortgage News Daily, the average 30-year fixed mortgage rate has jumped about 47 basis points since the Fed rate cut, to 6.62% from 6.15%.

The increase has aligned with a shift in how investors are viewing the Fed's path of future rate cuts, a pivot that started even before the September move. The 10-year Treasury yield — which is strongly correlated with mortgage rates — has also risen since the rate cut, signaling that investors feel good about the economy and are pricing in less easing going forward.

This was reinforced last Friday when a red-hot jobs report showed a surprise decrease in the unemployment rate and blowout nonfarm-payroll additions.

"Mortgage rates have increased since the September Fed meeting because longer term rates have also increased, mostly as a function of markets pricing in lower recession odds, thanks to strong payroll data especially," Carson Group global macro strategist Sonu Varghese told BI.

Now some economic commentators are saying rate cuts should be done for the year, an outcome that would fail to deliver on long-held expectations of extended easing — and one that would likely mean limited future declines in the mortgage rate.

The way forward

The conundrum around high mortgage rates is ultimately a catch-22.

If the Fed is no longer going to aggressively cut interest rates, a jump in home sales would be the clearest path to cheaper mortgages. But lofty mortgage rates are keeping that activity from increasing, and people are staying put in their homes and not putting them on the market.

Going forward, the situation hinges on the Fed's rate-lowering schedule. At present time, market expectations — as calculated by the CME FedWatch tool — are for two more 25-basis-point cuts this year.

Whether that will manifest itself in lower mortgage rates is up in the air. Two major upcoming events are the Consumer Price Index release this Thursday, as well as the October jobs report in the first week of November.

What those say about the health of the economy and the state of inflation will go a long way towards recalibrating the expected path of Fed easing. If it's concluded that substantially more relief is needed, downward movement could be seen. But if the economy continues to show signs of strength — and possibly persistently sticky inflation — mortgage-rate optimists may be out of luck.