Does the Federal Funds Rate Effect Mortgage Rates?

There has been a lot of talk recently anticipating that the Federal Funds rate will drop soon. Folks often think that the Federal Funds rate has a direct effect on mortgage interest rates. I asked Pat Gleason at Wells Fargo Home Mortgage to shed some light on the subject. She supplied me with the following information:

Does the Federal Funds Rate Affect Mortgage Rates? The short answer: No.
This graph contrasts the movements of the weekly average Federal Funds rate against the movements of the weekly 10-year Treasury Constant Maturity and those of the average 30-year fixed rate mortgage and 5/1 Hybrid ARM. It covers the period from November 2004 through October 2007.

Sources: Federal Reserve, HSH Associates.
For more about Fed Funds, mortgage and other loan rates, click here.
HSH grants permission to utilize this graph providing that the graph and its contents are not altered in any way.