The Fed raised its benchmark Federal Funds Rate at its March 14-15 meeting. The increase was expected and is set at 0.25 percent, bringing the new target rate range to between 0.75 to 1.0 percent.
Stocks, Mortgage Bonds and home loan rates all improved following the news. Here's why.
The Fed Funds Rate is the short-term rate at which banks lend money to each other overnight. It is not directly tied to long-term rates on consumer products like purchase or refinance home loans. Instead, home loan rates are tied to Mortgage Bond market performance. Home loan rates move lower when Mortgage Bonds improve.
In this case, the Fed's tame 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 to the Fed Funds Rate this year, which eliminated some uncertainty.