Mortgage rates jumped significantly higher this morning with the average conventional conforming 30yr fixed rate moving well over 5%. The most recent motivation for this upward momentum was yesterday’s speech from Fed Vice Chair Lael Brainard who warned of the need for the Fed to move more rapidly to reduce the size of its balance sheet (fancy words that mean the Fed will buy fewer bonds). Bonds are debt. Buying a bond is like lending money. The more demand for bonds, the more investors want to lend money. This can be thought of like the old “banks compete, you win” slogan. The bottom line is excess demand for bonds = lower rates, all other things begin equal. The Fed is a huge buyer of bonds. If they make policy changes resulting in fewer bond purchases, it puts upward pressure on rates. We already knew the aforementioned “balance sheet reduction” was in the works for mid-2022. We already knew it would be bigger and faster than the last time it happened in late 2017. We didn’t know exactly how unified the Fed members were in their desire to move quickly. Brainard would have been one of the biggest question marks in that regard. So when she talked tough, markets listened. More importantly, when Brainard talked tough on the day before the Fed was set to release the Minutes from the most recent Fed meeting (3 weeks ago), markets were instantly concerned that the Minutes would should broad consensus on the tough talk.