First, the Fed does not set mortgage rates; however, when the Fed lowers short term interest rates, it generally causes mortgage companies to drop their rates. This is not a definite as mortgage pricing, like the stock market, is effected by different things. Economic indicators (GNP, unemployment rate, housing starts...), bond and stock markets and the lender's own issues (too many or too few apps? reserves too low/high?...). Right now, due to the credit crunch, the commercial banks are not lending to the retail banks which is causing a shortage of available cash to lend by anyone (banks, credit cards, automakers...) to anyone. Rates, I think, are around 6%.
