The Fed has cut interest rates twice since September, and it's widely anticipated that they will cut again in December. Yet according to Freddie Mac's weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage has risen from 6.2% to 6.81% over the same period.

Mortgage rates rose when the Fed raised rates in 2022, so why aren't they falling now? For context, mortgage rates are loosely based off 10-year Treasury yields. So the real question is--why aren't 10-year Treasury yields dropping in lock-step with the Fed funds rate? There are a couple of primary reasons:

First, long-term rates are predictive. They are based on projections for future short-term rates--not current short-term rates. Before Covid, we were in a roughly 10-year period where inflation was running below the Fed's 2% target, so rates were historically low across the board.

And while we are still in the last mile of the battle, inflation and interest rates are slowly normalizing. So while the 10-year yield feels high, it has actually reached a more healthy level, even though it feels punitive after a deflationary decade with ultra-law rates.

Second, the national debt continues to grow as the government increasingly depends on borrowing to fund its budget. During Covid, the government borrowed to provide many fiscal stimulus programs that allowed for a relatively quick rebound. But they were expensive. And we continue to operate at a deficit.

Like any other security, there are only so many buyers for US Treasuries, so it comes down to basic supply and demand. With a greater supply (more Treasury issuance) and a relatively fixed demand, prices fall and yields rise--prices and yields have an inverse relationship.

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Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.

Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.