I was asked to explain the correlation between Fed Rate Cuts and Mortgage rates at the last meeting; the short answer is that there is no correlation. Why?

Correlation between Fed Funds Rate and Mortgage rates
I was asked to explain the correlation between Fed Rate Cuts and Mortgage rates at the last meeting; the short answer is that there is no correlation. Why? The Fed has tools at their disposal to set monetary policy; their most effective tool is setting the Federal (Fed) Funds Rate. The Fed Funds Rate is the interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions. By raising or lowering the Fed Funds Rate the Fed aims to achieve their goals of promoting maximum sustainable output and employment and to promote stable prices [controlling inflation]. If the Fed cuts the rate this helps borrowers with short term rates [think consumer credit cards and corporate lines of credit]. If consumers can lower their monthly debt obligations, they may be inclined to spend more money on goods and services; additionally [perhaps more importantly] if corporations can lower their monthly debt obligations they may be more inclined to spend money on income producing assets, expansion and or employees. The wild card here is the publics’ confidence in the Fed achieving its intended goal. Back to Basic Economics: Supply and Demand. If