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These futures typically price-in most upcoming Fed rate hikes/cuts with near 100% accuracy. Indeed there are entire groups of market securities devoted to betting on the Fed Funds Rate in the future (incidentally named "Fed Funds Futures"). Traders aren't going to wait for the Fed to actually pull the trigger on a rate hike if they can be reasonably sure it's coming. Recall that the Fed only meets 8 times a year but that the market is trading every millisecond. And yes, the Fed definitely hikes/cuts the Fed Funds Rate. Yes, the Fed Funds Rate absolutely has an impact on longer-term rates like mortgages. I thought you said the Fed Funds Rate didn't matter, but you just implied it had an impact. Changes to QE policies-especially when they're unexpected-have a far greater impact on long-term rates than the short-term Fed Funds Rate. This was/is the Fed's policy of buying Treasuries and Mortgage-Backed Securities in large amounts in an attempt to promote its policy goals. One of the most notable examples is that of QE or Quantitative Easing. The Fed may not set mortgage rates directly, but they can still say/do things that have a tremendous impact on all manner of interest rates. So why do rates sometimes react so much to Fed announcements? This is a vast minority of the mortgage market and nothing to do with the dominant 30yr fixed loan. The only potential exception for the Fed setting mortgage rates directly would be certain lines of credit that are based on the PRIME rate (which does change with the Fed's hikes/cuts). Whereas the Fed Funds Rate pertains to loans that last 24 hours or less, the average mortgage lasts 3-10 years depending on the housing and mortgage environments at any given moment in history. From there, the market decides what longer term loans will cost. In other words, the Fed "decides" (for lack of a better term) what the shortest-term loans will cost. It has several policy tools that ensure the target is reliably hit within a quarter of a percent margin (one reason that the Fed communicates rate targets in 0.25% windows). The Fed Funds Rate is a target set by the Fed for interest charged by big banks to lend money to each other on an overnight basis. Mortgage Backed Bonds and Securitization.