Written by: Mark Hamrick
The Hamrick American Prosperity Index (HAPI™) held at 58.8 in August, unchanged from July after revisions. Two changes offset each other: more Americans were working, but hourly pay lost ground to inflation.
The employment-to-population ratio edged up to 59.1 percent from 58.9 percent in July, although the Bureau of Labor Statistics described it as little changed since January. Employers added 162,000 jobs in August, while July was revised from a reported loss of 23,000 jobs to a gain of 21,000. The unemployment rate remained 4.1 percent. The number of people working part-time for economic reasons fell by 414,000 to 4.4 million.
The paycheck side was less encouraging. Average hourly earnings increased 3.1 percent over the past year, while consumer prices rose 3.4 percent. Real average hourly earnings for private-sector employees declined 0.3 percent from August 2025. July's real-wage reading was revised to a 0.1 percent decline. That additional erosion in purchasing power matched the employment ratio's two-tenths-point gain.
That is why the HAPI did not rise. The index combines the employment-to-population ratio with the year-over-year change in real average hourly earnings. More people working lifts the index; declining purchasing power pulls it down. In August, the two forces canceled each other out.
Real weekly earnings rose 0.3 percent over the year because the average workweek was longer. The workweek reached 34.4 hours in August, up 0.6 percent from a year earlier. Employees earned more across the week because they worked longer, even as each hour bought slightly less.
The Fed Raised Rates but Mortgage Rates Do Not Always Follow
After 82 Fed moves since 1996, mortgage rates went in the opposite direction nearly half the time
I heard it again this week, in news coverage and in questions surrounding the Federal Reserve’s latest decision: "The Fed is raising interest rates, so mortgage rates are headed higher."
It sounds logical. It is also an oversimplification that history does not support.
At its September meeting, the Fed raised its benchmark federal funds rate by a quarter percentage point, putting its target range at 3.75 percent to 4 percent. It was the central bank's first increase since July 2023, a little more than three years ago.
Then the following day, Freddie Mac reported that the average 30-year fixed mortgage rate had risen to 6.95%, up from 6.76% a week earlier. That might seem to confirm the familiar story: The Fed hiked, and mortgage rates followed.
Except the timing tells us otherwise.
Freddie Mac’s weekly survey reflects mortgage applications submitted from the prior Thursday through Wednesday. Most of the period captured in Thursday’s report came before the Fed announced its decision at 2 p.m. Wednesday. The mortgage-rate increase was already happening. It cannot fairly be described as a response to the Fed’s announcement.
The timing matters because it points to a persistent misunderstanding about how mortgage rates are set.
What 30 Years of History Show
I tested that assumption by examining 82 Fed rate changes from January 1996 through December 2025: 44 increases and 38 cuts. I compared the average Freddie Mac 30-year mortgage rate immediately before each Fed action with the first weekly reading approximately four weeks later.
The results were almost evenly split.
Mortgage rates moved in the same direction as the Fed 43 times, or 52 percent of the time. They moved in the opposite direction 39 times, or 48 percent. After the 38 rate cuts, mortgage rates were lower four weeks later 19 times and higher 19 times.
After the 44 Fed increases, mortgage rates rose 24 times and fell 20 times.
Fed policy influences mortgage rates. But a Fed hike, by itself, does not mean mortgage rates are headed higher. Over the following four weeks, that prediction has been wrong almost half the time.
Watch the 10-Year Treasury
The federal funds rate is an overnight interest rate. A 30-year fixed mortgage is a long-term financial asset, usually packaged into a mortgage-backed security and sold to investors.
That is why the 10-year Treasury yield is a more useful guide to the direction of mortgage rates. It reflects expectations for inflation, economic growth and future short-term rates, along with a term premium affected by the supply of and demand for Treasury debt.
Across the same 82 Fed episodes, mortgage rates and the 10-year Treasury moved in the same direction over the following four weeks 64 times, or 78 percent of the time. They moved in opposite directions 17 times. One episode was unchanged.
The relationship is strong, but not perfect. Mortgage rates typically move with the 10-year Treasury yield plus a spread influenced by prepayment risk, interest-rate volatility and conditions in the mortgage-backed securities market.
Freddie Mac has estimated that 98% of the variation in average weekly 30-year mortgage rates from 1990 through 2019 could be statistically explained by variation in the 10-year Treasury yield.
More recent Dallas Fed research estimated that mortgage rates have a partial sensitivity of less than 20% to the federal funds rate, compared with 85% to the 10-year Treasury, holding other factors constant.
A Recent Example
The Fed cut rates by half a percentage point in September 2024. Four weeks later, the average 30-year mortgage rate was 35 basis points higher, not lower. The 10-year Treasury yield had risen 36 basis points over the same period.
Mortgage rates followed the bond market rather than the direction of the Fed's action.
The same principle applies now. Mortgage rates could keep rising, level off or decline.
The outcome will depend on how investors assess inflation, economic growth, Treasury borrowing and the future path of interest rates, not simply on the Fed's quarter-point move.
The Fed sets the overnight rate. The bond market has a much larger say in your mortgage.
Methodology
The analysis uses Freddie Mac's weekly Primary Mortgage Market Survey, the Federal Reserve's federal funds target history and the Fed's daily 10-year constant-maturity Treasury series.
For each Fed action, I used the latest available mortgage-rate and Treasury observations on or before the effective date, then the first available observations on or after 28 days. Before December 2008, I used the Fed's single target rate. Afterward, I used the midpoint of the target range.
Freddie Mac changed the PMMS methodology in November 2022, moving from a lender survey to mortgage applications submitted through its Loan Product Advisor system. Freddie Mac provides the revised series back to 2005; earlier observations use the legacy survey.
Related: The Problem With Waiting for the “Right Time” to Invest
