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birb_cromble  4d ago (text post)   964 thread views

Qeekly Finance Thread - 2026-11-07

A weekly thread to discuss financial matters - from personal all the way up to global.

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Yes, over the long term, I would expect that's true. But not in the short term. In 2022, going by memory here, you could still get a mortgage for like 3% while inflation was hitting 9%.

This is roughly correct.

I'm sure the professional econometricists have more sophisticated models that include more factors and lags, but I think the rough picture is "supposed to" be like this: Higher core inflation affects investor and consumer expectations for long-term inflation. The Fed, trying to implement its dual mandate, tries to contain this by adjusting the federal funds rate.

The funds rate, however, acts most directly on the front end of the yield curve, while the long end responds to expectations of future short-term rates and the term premium. So the effect on the long end can be muted, and it doesn't necessarily move in lockstep with the funds rate. Eventually, if they pull hard enough and long enough with the curve inverted, the long end will also move.

Investors then trade agency MBS at a spread over Treasuries, based on current expectations for the risk premia required to compensate for interest-rate, prepayment, and liquidity risks (and those spreads aren't necessarily always positive). People's actual mortgages are then quoted at an additional spread that accounts for origination and servicing costs, lender margin, your personal risk, percent down, the local market, etc. (plus whatever policy shenanigans are going on at Fannie and Freddie with guarantee fees).

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