Mortgage Rates, QE, and Market Volatility: Separating Headlines from Reality

Mortgage Rates, Quantitative Easing, and Market Volatility: What Actually Matters

With constant headlines about interest rates, government intervention, AI-driven market booms, and bond market volatility, it’s easy to feel like mortgage rates are being pulled in every direction at once.

This article isn’t about predictions or politics. It’s about understanding the plumbing behind mortgage rates — and separating what sounds important from what actually moves the market.

How Mortgage Rates Really Work

Mortgage rates are not set by the Federal Reserve, and they’re not directly “backed by Treasuries.”
Most conventional mortgages are pooled into mortgage-backed securities (MBS) guaranteed by agencies like Fannie Mae, Freddie Mac, and Ginnie Mae. Those guarantees remove credit risk, but they do not remove interest rate risk.

That interest rate risk is priced daily by investors.

Mortgage rates are primarily driven by:

• Inflation expectations

• Treasury yields (especially the 5–10 year range)

• Investor demand for MBS (prepayment, duration, convexity risk)

• Global capital flows

This is why mortgage rates can move even when the Fed does nothing — and why headlines often matter less than people think.

Quantitative Easing: When It Was Used and Why It Worked Then

Quantitative Easing (QE) wasn’t one program. It came in distinct phases, each responding to a crisis.

QE1 – Financial Crisis (2008–2010)

• Started: November 2008

• Ended: March 2010

• Purchases: Treasuries + large amounts of MBS

• Size: ~$1.7 trillion

• Goal: Stabilize the financial system after the housing collapse

QE2 – Post-Crisis Support (2010–2011)

• Started: November 2010

• Ended: June 2011

• Purchases: Treasuries only

• Size: ~$600 billion

• Goal: Prevent deflation and support a weak recovery

QE3 – Open-Ended QE (2012–2014)

• Started: September 2012

• Ended: October 2014

• Purchases: Treasuries + MBS

• Size: ~$1.6–1.7 trillion

• Goal: Support employment and growth

Pandemic QE (2020–2022)

• Started: March 2020

• Ended: March 2022 (Rates shot up over 7% as they not just stopped buying but they announced they were selling) 

• Purchases: Massive Treasuries + MBS, very rapidly

• Size: ~$4.5 trillion

• Goal: Prevent financial collapse during COVID

Total QE Expansion: roughly $8.5–9 trillion

Importantly, this money wasn’t “borrowed” like government debt. The Fed created bank reserves electronically and used them to buy assets. The costs showed up later through asset inflation and, eventually, higher consumer inflation.

Why Today’s $200B MBS Purchase Is Different

When news broke about a $200 billion MBS purchase, mortgage rates dipped briefly — for about a day. Then the market moved on.

Why?

Because the MBS market is multi-trillion-dollar in size. $200B helps at the margins, but it’s not large enough to materially reset mortgage rates unless it becomes part of a much larger, sustained program.

As of mid-January 2026, purchases have already begun. Markets now view this policy as a partial offset to the Federal Reserve’s ongoing MBS runoff — not a return to QE. That’s why it already feels like old news.

Markets don’t move on headlines. They move on scale, durability, and net impact.

Political Risk, AI, and Volatility

Even discussions about replacing the Fed Chair introduce uncertainty. Markets price uncertainty as risk, and risk pushes yields higher — not lower.

At the same time, capital flowing into high-growth sectors like AI often pulls liquidity away from bonds, including mortgage-backed securities. That can widen mortgage spreads even if Treasury yields behave.

Volatility doesn’t automatically mean lower mortgage rates.

What This Means for Buyers and Homeowners

Here’s the practical takeaway:

• Mortgage rates are likely to remain range-bound but volatile

• Sharp drops tied to headlines tend to be short-lived

• Waiting for a “policy miracle” to fix affordability is risky

• Payment strategy, structure, and timing matter more than perfect rate calls

For buyers, this means focusing on:

• Realistic payment comfort, not headline rates

• Lock strategy and flexibility

• Understanding refinance opportunities before you need them

For homeowners, it means:

• Don’t panic over daily moves

• Don’t assume QE-era rates are coming back

• Stay positioned, not reactive

The Bottom Line

There is no clean, painless lever that lowers mortgage rates without consequences elsewhere. Mortgage rates are not 

Any policy that meaningfully drives rates lower must either:

1. Reduce inflation expectations, or

2. Increase global confidence in long-term U.S. debt

Most proposals struggle to do either.

Clarity comes from understanding the system — not chasing narratives. When you focus on the plumbing instead of the politics, better decisions follow.

If you would like to schedule a 30-minute call to go over your specific situation or answer any questions- I am available via email at bblack@nwfgi.com 

— Bill Black