While many people view the Federal Open Market Committee rate cut as a positive for mortgage interest rates, it is important to remember that rate cuts are made to stimulate the economy. The bond market usually benefits when the economy is slowing. In addition, borrowers must also realize that the threat of inflation still exists. Inflation, either real or perceived, causes mortgage interest rates to rise. The most pressing inflationary threat currently lies in oil prices.
Oil is a commodity that affects almost every product that comes to market.
As long as companies are able to absorb the increased oil prices, inflation may stay at bay. However, continued energy price increases may eventually result in significant inflation and therefore an increase in mortgage interest rates.