Fed Funds Rate Unchanged

Wednesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was 7-3 — the second straight meeting at which the FOMC adjourned with as many 3 dissenters. Prior to that last meeting, there hadn’t been 3 FOMC dissenters since 1992.

In its press release, the Federal Reserve presented a dour outlook for the U.S. economy, noting that since its last meeting in August:

1. Economic growth “remains slow”
2. Unemployment rates “remain elevated”
3. The housing sector “remains depressed”

The Fed also said that there are “significant downside risks” to the economic outlook, tied to strains in the global financial markets.

Not all Bad News

The Fed noted that business investment in equipment and software continues to expand, and that inflationary pressures on the economy appear to have stabilized. The Fed then re-iterated its plan to leave the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″. This means that Prime Rate — the rate to which credit card rates and lines of credits are often tied — should remain unchanged at 3.250 for at least another 2 years.

Furthermore, as expected, the Federal Reserve launched a market stimulus plan aimed at lowering long-term interest rates. The Fed will sell $400 billion in Treasury securities with a maturity of 3 years or less, and use the proceeds to buy the same with maturity between 6 and 30 years.

Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in Iowa are improving, but note that Wall Street sentiment can shift quickly — especially in a market that’s as uncertain as this one.

If today’s mortgage rates and payments fit your household budget, consider locking in a rate. Rates can change swiftly.

The FOMC’s next meeting is a 2-day affair, scheduled for November 1-2, 2011.

Fed Funds Rate to Remain Unchanged

Today, for the 2nd straight meeting, the Federal Open Market Committee voted unanimously to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.

The vote was 10-0.  That’s what we like to call a “sure thing”.

In its press release, the FOMC noted that since its January 2011 meeting, the economic recovery “is on firming footing”, and that the labor markets are “improving gradually”. In addition, household spending “continues to expand”. Nonetheless, the Fed said, the economy remains constrained by rising commodity prices and the “depressed” housing sector.

The FOMC statement also re-affirms the group’s plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package — more commonly known as “QE2″ — intact.

How Will the Markets React?

Well, for the third straight time, the Federal Open Market Committee’s post-meeting release statement included a paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, and fostering maximum employment. Although it acknowledged inflationary pressures on the economy, the Fed said inflation remains too low for the economy currently, and that unemployment remains “elevated”.

In time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC has been negative since the statement’s release. Mortgage rates in Des Moines are unchanged, but poised to worsen.

The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.

If you’re in the process of buying or refinancing a house, I would love to help you lock in an interest rate.  Timing is everything, and I’m certain that mortgage rates are going to be moving higher.  You can either apply for a loan online or call my office at 515-257-6729.   My email is also on the right hand side of this post (not posting to avoid spam-bots!).

UPDATE at 2:17pm (3/15): Mortgage markets have worsened slightly from open.  Up about .125% from the “lows”.  Still historically extremely low, but proving that they aren’t going to stay this low forever. If you’re still shopping, contact me.

Lowest Fed Funds Rate Ever

The Federal Open Market Committee held a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.

The FOMC is the government’s fancy monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate.  No, it’s not mortgage rates.

The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.

Because the Fed Funds Rate is near zero, it’s accommodates economic growth, spurs businesses and allows consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.

The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant.  It’s expect that the Fed will reiterate that message in today’s post-meeting press release.

Rates are Usually Volatile Just Before and After Fed Meeting

Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.

Mortgage rates in Iowa tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.

When Ben Bernanke & Co. speak, Wall Street listens.

The Fed’s press release today will be dissected and analyzed.  Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.

Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock before 2:15 PM ET today.

January 27th 2010 — FOMC Meeting

On Tuesday, the Federal Open Market Committee decided to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In the Fed’s press release, it was noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.

I generally agree with all of these statements.

However, there was no mention of the housing market’s strength.  The last 3 statements from the Fed included that specific verbiage.  Was that intentional?  Your guess is as good as mine.

Most importantly, it’s the fifth straight statement in which the Fed spoke about the economy with optimism.  This should signal to markets that 2008 and 2009 recession is over and that economic growth is returning to U.S. economy.

The Fed is Still Optimistic

The economy isn’t without threats, however, and the Fed identified several important points in its press release, including:

1. Consumer credit remains tight
2. Businesses are still reluctant to hire new workers
3. Housing wealth is down (shocker….)

The message’s overall tone did seem positive and inflation appears is still within tolerance.  Which again, is a *very* big deal when it comes to mortgage rates.

Most Importantly

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to wind down its $1.25 trillion commitment to the mortgage market by March 31, 2010.  This is extremely noteworthy because Fed insiders estimate that the bond-buying program suppressed mortgage rates by one percent through 2009.

Mortgage market reaction to the Fed press release is, in general, negative. Mortgage rates in Iowa are rose this afternoon.

The next Fed meeting is scheduled for 3/16/2010.

If you’re currently monitoring mortgage rates, I’d love to help give you my insight on your personal situation.  I’d love to help out!

1 Down, 7 to Go in 2010

The Federal Open Market Committee ended a scheduled, 2-day meeting yesterday in Washington.  It’s the first of eight scheduled meetings for the policy-setting group in 2010.

The group ended their meeting at 2:15 PM ET.

After the meeting is over, the Fed quickly issues a press release to the markets recapping its views of the country’s current economic condition, and their outlook on things.

The post-meeting statements from the Fed are generally brief but comprehensive. And Wall Street loves every word.  Each piece of it is carefully dissected in the hope of gaining an investment edge over other active traders.

It’s for this reason that mortgage rates tend to be goofy on days the FOMC adjourns. It’s because Wall Street is frantically re-balancing its bets.

Yesterday was No Different

After the meeting, the FOMC said that they decided to leave the Fed Funds Rate within its target range of 0%-0.25%  — the lowest it’s been in history.  It’s what the Fed said on Wednesday that will matter.  Not so much what it did (or didn’t) do.

After the Fed’s last meeting in December, it made several observations:

1. The jobs market is getting better, or as they put it, “less worse”
2. The housing sector is making some improvements
3. Financial markets are slowly stabilizing further

As the Fed told us, markets are slowly improving, but there are still risks to the economy ahead.  Most importantly when it comes to mortgage rates, inflation remains in check.

As compared to December’s press release, yesterday’s FOMC statement will be closely watched. If the Fed changed its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates in Urbandale to rise as Wall Street moves its money from bonds to stocks.  It’s just the way the process works.

Conversely, reference to slower growth in 2010 should lead rates lower.  However, I think there are too many moving parts to comfortably predict this.

If you’re currently looking for a mortgage, contact me!  We’re easy to work with.  And, our rates are pretty good too!

Mortgage rates are higher after the Fed released their notes.

Known as the ”Fed Minutes”, the report details the conversation and cross-currents that led to the Federal Reserve’s decision to vote “unchanged” on the Fed Funds Rate after its last meeting.

The Fed Minutes are the lengthy companion to the more famous, succinct post-meeting press release.

As a comparison:

• Press Release: 383 words
• Minutes: 6934 words

The extra level of details is a big deal because Wall Street is perpetually in search of clues about what the Federal Reserve is going to do next.

The Fed Funds Rate May Rise as Early as April 2010

In the past week, multiple Federal Reserve members hinted that it could be that soon.  Fed Chairman Ben Bernanke even alluded to it, too.

The minutes revealed that the economy may improve even faster than was previously expected, too.

These acknowledgements are part of the reason why mortgage rates are up. Because the Fed Funds Rate rises to accommodate a growing economy, the prospect of economic recovery is drawing money into the stock market and away from mortgage-backed bonds.

Less demand for bonds means a lower prices which, in turn, leads to higher rates.

What’s The Fed Up To?

Today, The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged.  The Fed Funds Rate (FFR) remains within a target range of 0.000-0.250 percent.
Talking Points of Today’s Statement

In today’s press release, the FOMC reiterated most of the key points from its December 2008 statement, including:

• The U.S. employment outlook continues to deteriorate
• Consumers and businesses continue to cut spending
• The housing sector is still showing weakness

In addition, the FOMC addressed the “extremely tight” credit conditions for U.S. households and business, even as it said some financial markets are showing signs of improvement.

For Americans needing new mortgages or other forms of credit, it may mean that getting approved gets easier sometime late this year.  Again, may mean so.

The Full WSJ Parsing of the Fed

The Fed’s Tool Belt

It’s important to also mention that the Fed’s press release again mentioned the policy-setting group’s plan to “employ all available tools” to promote economic growth.  An example of this is the purchasing of mortgage-backed debt, which has helped fuel the current Refi Boom.  In today’s statement,  the Fed indicated they’re willing to extend the program beyond the initial $500 billion if it’s needed.

Chances of Inflation Long Term

For all of the good these moves will do, there is a downside.

Buying securities like mortgage backed securities cost big money and the Fed — literally — comes up with the cash by printing it.  With the extra supply of money, the U.S. dollar devalues.  If it goes without being considered, it can cause the Fed’s plan to backfire.  Inflation could be harsh. The Fed has mentioned they are aware of these risks and has pledged to monitoring them closely.

Overall, mortgage rates worsened slightly today after the Fed’s statement.  I think tomorrow (Thursday) will be the real decision maker.

(Photo Kudos: Parsing the Fed Statement, WSJ)

In its press release, the FOMC identified three key economic sectors in which activity has weakened since October. The FOMC noted that:

1. The U.S. job market is deteriorating
2. Consumer spending levels are falling
3. Business investment is contracting nationwide

The Fed intends its rate cut to provide stimulate to each of these areas.

In addition, the voting members of the FOMC singled out inflation as less of an immediate threat to the economy.  This is an important admission because it’s well-known that cuts to the Fed Funds Rate can spark inflation.  Rapidly falling oil prices and commodity costs, therefore, likely paved the way for today’s historic cut.

In its announcement to markets, the Fed gave The People what they wanted — a reassurance that the policy-making group would “employ all available tools” to help turnaround the economy.  Lowering the Fed Funds Rate to an all-time low is one such step; its plan to purchase mortgage-backed debt in the open market is another.

After the announcement, stock markets rallied and mortgage bonds did, too.  Rates ended the day slightly lower.  Much more to likely come.  To see progress as it happens, follow me on Twitter.

Main Source Kudos
Parsing the Fed Statement
The Wall Street Journal Online
December 16, 2008

http://online.wsj.com/internal/mdc/info-fedparse0812.html

]]> http://wealthwithmortgage.com/398/understanding-the-fed-statement-december-16/feed/ 0 http://wealthwithmortgage.com/397/the-fed-cuts-to-0-and-mortgage-rates-go-wild/ http://wealthwithmortgage.com/397/the-fed-cuts-to-0-and-mortgage-rates-go-wild/#comments Tue, 16 Dec 2008 20:43:12 +0000 Tyler Osby http://wealthwithmortgage.com/?p=397

The Federal Open Market Committee (that’s Bernanke’s crew) ends its 2-day meeting at 2:15 P.M. ET today.

It’s widely expected that the FOMC will reduce the Fed Funds Rate by a half-percent to 0.500 percent.

Fed Funds Rate cuts are meant to stimulate the economy by lowering borrowing costs for businesses and consumers. Interest rates on business credit lines and consumer credit cards are directly tied to the benchmark rate.

However, it won’t be what the Fed does today that will be as important as what the Fed says.  And the markets are listening extremely closely.

See, this FOMC meeting was originally scheduled to last 1 day but on November 20, it was extended to 2.  Presumably, the extra day was meant to give the FOMC a chance to review its options, but now it has the markets expecting “something big”.

Wall Street wants Bernanke to outline credit-extenstion plan for banks, businesses and consumers.  It wants the Fed to strengthen markets to prevent the recession from become a depression.  It wants action.  Anything short of an explicit plan should push traders into ultra-safe U.S. Treasury bonds and that should lead mortgage rates higher.

If you are floating a mortgage rate today, it may make sense to lock prior to the Federal Open Market Committee’s press release.  Expect volatility beginning around 2:00 P.M. ET today.   Extreme volatility.  Follow me on Twitter to see the ‘play-by-play’ on what the markets are doing.

If the history has any factor in predicting what will happen with today’s (likely) rate cut, you should see for yourself what has happened.  I’m not saying inflation is much of a concern anymore — but some still think it is.

Photo Kudos: The Wall Street Journal