Thermostat Analogy

Imagine the economy is your home.

The Federal Reserve holds the thermostat.

• If inflation is too hot → they turn the temperature down (raise rates).

• If the economy is too cold → they turn the temperature up (lower rates).

But here’s where it gets tricky: Mortgage rates are like the upstairs bedroom temperature. Even if the thermostat changes, the upstairs room doesn’t adjust instantly. It reacts based on insulation, outside weather, and how the rest of the house behaves. (Bond markets, inflation and labor data, debt load.)

So taking our analogy and plugging it back into the economy:

• If investors believe inflation is truly cooling → mortgage rates usually drift lower.

• If investors worry inflation could flare back up → mortgage rates stay elevated.

If the economy looks shaky → rates may fall faster.

Now let’s look at what this means for a $600,000 home purchase.