The new FED Chief, Kevin Warsh, is being touted by many as the person who could lead the US to cheaper borrowing rates, thereby fueling the US economy. The first meeting this week did not produce lowered rates (The Fed controls the short-term federal funds rate) as inflation, fueled by the Middle East conflict and Russia-Ukraine war, remains elevated.

While FED borrowing rates matter, it is the 10-year Treasury that matters most in real estate. The 10-year Treasury yield is driven by long-term economic expectations rather than direct Federal Reserve rate cuts, meaning it can fall, rise, or stay flat depending on why rates are being lowered.

• If the Fed lowers rates to successfully stimulate a sluggish economy, investors will anticipate stronger growth and higher inflation. In this scenario, investors demand higher returns on long-term debt, causing the 10-year yield to rise.
• If the Fed lowers rates because of a sudden recession or geopolitical crisis, investors flee to the safety of government bonds. This high demand drives the price of the bond up, which pushes the 10-year yield down.
• When the US dollar weakens, yields on the 10-year Treasury note generally fall, though they can sometimes increase if the currency decline is driven by high inflation or significant concerns about US debt levels.
• Yields generally rise, while market pricing will fall, if the U.S. national debt keeps growing indefinitely. This core dynamic is driven by the basic laws of supply and demand, alongside growing investor anxiety over long-term inflation and fiscal sustainability.

The biggest threat to the 10-Year may be the growing US debt. Excessive, inefficient spending not being covered by revenue could be the biggest driver of mortgage rates.