If the fed interest rate is 3.75-4%, why is the average mortgage rate above 7% and most savings accounts are below 3%?
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The fed rate only applies to rate that banks pay to the Fed for overnight borrowing to maintain reserve requirements. But other interest rates are typically pegged to the Fed rate and move in close lockstep to it. So when Fed rate was 0, then mortgages were about 3%. When Fed raises rate to 4%, mortgages remain about 3% higher at 7%. Interest paid by banks is similarly somewhat pegged to Fed rate but will be lower as banks’ revenue comes from the spread between interest charged to borrow and interest paid on deposits.
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