Despite the Federal Reserve's 50 basis point rate cut in September, financial conditions have actually tightened rather than loosened. This is because the Fed only has direct control over the interbank overnight rate, and market forces control other interest rates along the yield curve. The market had priced in an aggressive cutting cycle, but when the Fed actually cut rates, most other maturities on the yield curve increased. This led to increased borrowing costs on the long end of the yield curve and tighter financial conditions. Additionally, mortgage rates have increased since the rate cut, leading to a decrease in mortgage refinancing. Overall, this highlights the importance of looking at the broad economy rather than just the overnight rate.



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