A veteran broker says a Fed rate increase may be what sends mortgage rates lower
The benchmark 10-year US Treasury yield climbed above 4.9% Thursday for the first time since November 2023, pushed higher by oil prices crossing $100 per barrel and intensifying fears that inflation will remain entrenched ahead of next week's Federal Reserve decision.
The 10-year yield rose more than 6 basis points to 4.906%, according to market data. The 10-year yield is the primary benchmark lenders use to price home loans.
The 30-year Treasury bond yield advanced more than 5 basis points to 5.337%, while the 2-year note, more sensitive to near-term Fed expectations, hit 4.501%, its highest level since July 2023.
Each 1 basis point equals 0.01%, and bond yields move inversely to prices.
Oil and geopolitics drive the bond selloff
Thursday's move extended losses that began Wednesday after Treasury Secretary Scott Bessent announced plans to buy back $6 billion in longer-dated government bonds.
Prices fell further as US crude oil broke through the $100-per-barrel threshold on growing fears of a prolonged conflict between the United States and Iran.
The surge effectively overshadowed a producer price reading that came in on consensus. Wholesale prices rose 0.4% in August, according to the US Bureau of Labor Statistics, while core prices — stripping out food and energy — climbed 0.2%, modestly below the 0.3% estimate from Dow Jones.
As brokers have been tracking how rising bond yields affect mortgage borrowing costs through recent months, Thursday's spike reinforced a concern that has defined much of 2025: the widening gap between Fed policy signals and actual home loan costs.
Mortgage rates have climbed back toward 7% after briefly dipping below 6% earlier in the year. Consumer price data due Friday and a Federal Open Market Committee meeting scheduled for September 15–16 have now become the two most closely watched events in the mortgage market.
The 30-year fixed-rate mortgage rose to 6.71% for the week ending September 3, according to Freddie Mac's Primary Mortgage Market Survey (PMMS) — its highest level since July 31, 2025, when it stood at 6.72%.https://t.co/FWWow9eJM7
— Mortgage Professional America Magazine (@MPAMagazineUS) September 7, 2026
A counterintuitive case for a rate increase
With rate relief elusive, Melissa Cohn, regional vice president at William Raveis Mortgage and a 44-year industry veteran, is putting forward an argument that cuts against conventional expectations: a Fed rate hike could actually push mortgage rates lower.
Her reasoning is rooted in bond market psychology. Inflation remains well above the Fed's 2% target, and Cohn argues that a decisive move to tighten would signal to bond traders that the central bank is serious, restoring confidence in longer-dated Treasurys and pulling yields down with it.
"A rate hike would probably be necessary, and I believe that when or if the Fed does raise rates, they'll put their money where their mouth is about fighting inflation," Cohn said.
"That could actually provide relief in the bond market."
For brokers managing client conversations about the gap between Fed policy and mortgage rate movements, the dynamic is not new, but Cohn's framing adds a counterintuitive edge to those conversations.
"I think it would be prudent if they hike rates, and I think the bond market would react favorably, bond yields would go down, and mortgage rates would go down," she said.
"Remember: at the beginning of the last rate-cutting cycle, mortgage rates actually went up when the Fed was cutting rates. I think there's a very good reason mortgage rates could go down if the Fed actually does raise rates."
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