By Nathalie Voit

Mortgage rates dropped sharply following news that the central bank boosted its policy rate by 75 basis points on June 15, new data from Mortgage News Daily (MND) showed.

According to MND, the average rate for the popular 30-year fixed mortgage hit a high of 6.28% on June 14, just one day before the Fed delivered its monetary policy update on inflation. After climbing 80 basis points over five days, the 30-year fixed is now down to 6.03% as of June 15, a sharp drop from the 6% range reported earlier this week.

The 25-basis point decline follows news that the Fed raised its benchmark interest rate by three-quarters of a percentage point on Wednesday. The move is surprising given that one would expect the 75-basis point increase to prompt a similar upward shift in mortgage rates. Contrary to popular perception, however, mortgage rates on June 15 did not move upward but decreased. MND Chief Operating Officer Matthew Graham explained that the markets had already factored in the Fed’s decision to hike the benchmark rate by 0.75%.

“When we finally heard from the Fed today, the initial reaction suggested the market’s wild imagination was actually fairly accurate,” Graham wrote in a blog post yesterday. “The Fed hiked its policy rate by the same 75 basis points (0.75%) predicted by Fed Funds Futures (tradeable contracts that allow markets to bet on the level of the Fed Funds Rate).”

Graham explained that the federal funds rate doesn’t dictate mortgage rates. “At best, big changes in Fed Funds Rate expectations” do, he said.

“The bottom line though is that by the time the Fed actually hikes or cuts, mortgage rates have already reacted to whatever the Fed was likely to do,” he said.