Mortgage And Deposit Rates Go Their Separate Ways
Long- and short-term expectations
Although interest rates generally have been moving together in recent years, it is not unprecedented for mortgage rates and deposit rates to veer off in different directions. After all, mortgage rates represent long-term commitments and deposit rates represent short-term commitments.
There are fundamental differences between the two.
Both long- and short-term interest rates would be inclined to rise if there were solid evidence that the economy was improving. Where the difference comes in is with respect to time horizon. Long-term interest rates, such as rates on a 30-year mortgage, would be more influenced by the long view, and would start to rise if the outlook for six months or or a year down the road seemed to be getting better. Deposit rates, on the other hand, only represent a short-term commitment, and would tend to stay in place until solid evidence of economic improvement was at hand.
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