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Today’s Federal Reserve Statement Made Simple
Wednesday, the Federal Reserve’s Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent. The Fed Funds Rate has been near zero percent since December 2008.
For the third consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote, objecting only to the language used in the Fed’s official statement.
In its press release, the Federal Reserve noted that the the U.S. economy has “expanding moderately” since its last meeting in December 2011, adding that the growth is occurring despite “slowing in global growth” — a reference to ongoing economic uncertainty within the Eurozone.
The Federal Reserve expects moderate economic expansion through the next few quarters but is wary of “strains” from global financial markets, and these three threats to the U.S. economy :
- The housing sector remains “depressed”
- The unemployment rate remains “elevated”
- Fixed business investment has “slowed” Read the rest of this entry »
Mortgage Rates Expected To Move
The Federal Open Market Committee adjourns from a scheduled 2-day meeting today, its first of 8 scheduled meetings this year.
The FOMC is a designated, rotating, 12-person committee within the Federal Reserve, led by Federal Reserve Chairman Ben Bernanke. Members of the FOMC sub-committee are the voting members of the Federal Reserve; the ones that ultimately determine U.S. monetary policy.
The most well-known Federal Reserve monetary policy tool is the central bank’s Fed Funds Rate. The Fed Funds Rate is the prescribed interest rate at which banks borrow money from each other for a period of one night.
The Fed Funds Rate can only be changed by FOMC vote.
For home buyers and would-be refinancing households in Blairsville and all the North Georgia Mountains, it’s important to recognize that the Fed Funds Rate is an interest rate separate and distinct from “mortgage rates”. Mortgage rates are not voted upon by the Federal Reserve. Rather, mortgage rates are based on the price of mortgage-backed bonds, a security bought and sold among investors. Read the rest of this entry »
Fed Minutes Show An Improving U.S. Economy
The Federal Reserve has released the minutes from its most recent Federal Open Market Committee meeting. The Fed Minutes are a detailed meeting recap; the companion piece to the more brief, more well-known press release.
As a comparison, the minutes of the last FOMC meeting contained 60 paragraphs and 7,027 words. The post-meeting press release was just 5 paragraphs and 382 words.
December’s Fed Minutes shows Fed members with a positive, cautious, take on the economy.
Recent data suggests that the U.S. economy is expanding, the Fed said, but “strains” in global financial markets pose “significant risks” to the downside. This tell us that the Fed believes its economy-stimulating programs are working, but that officials remained concerned by events in the Eurozone.
The Federal Reserve Statement For November 2011
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 nearly unanimous, with just one dissenting voter. There were 3 dissenters at each of the FOMC’s last two meetings.
In its press release, the Federal Reserve presented an improved outlook for the U.S. economy, noting that since its last meeting in September, there’s new evidence that the economy “strengthened somewhat” in the third quarter.
One example cited is that consumer and business spending continues to rise while inflationary pressures on the economy remain modest. This indicates controlled growth — a plus in a recovering economy.
The economy remains slowed by a number of factors, though, as noted by the Fed :
- “Continuing weakness” in the labor market
- Softness in commercial real estate
- A “depressed” housing market
In response to mixed economic conditions, the FOMC opted to “do nothing” today; it introduced no new monetary policy, and revised none of its existing market stimulus. The Fed re-iterated its plan to leave the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″ and affirmed “Operation Twist” — the program in which the Fed sells Treasury securities with a maturity of 3 years or less, and uses the proceeds to buy mortgage bonds with maturity between 6 and 30 years.
Mortgage market reaction to the FOMC statement has been negative this afternoon. Mortgage rates throughout the North Georgia Mountains are rising because analysts expected the Fed to launch new, bigger stimulus plans. It didn’t. Rates may drift higher for the new few days, too.
Therefore, it today’s mortgage rates fit your household budget, consider locking in a mortgage rate. Mortgage rates are very low right now, relative to history. It may not last.
The FOMC’s next meeting — its last scheduled meeting of the year — is December 13, 2011.
Could There Be More Risk To Home Affordability?
Within the next 48 hours, mortgage rates may get bouncy. The Federal Open Market Committee will adjourn from a 2-day meeting and October’s Non-Farm Payrolls report is due for release.
Of the two market movers, it’s the Non-Farm Payrolls report that may cause the most damage. Rate shoppers across Georgia would do well to pay attention.
Published monthly, the “jobs report” provides sector-by-sector employment data from the month prior. It’s a product of the Bureau of Labor Statistics and includes the national Unemployment Rate.
In September, the economy added 103,000 jobs, and job creation from the two months prior was shown to be higher by 99,000 jobs higher than originally reported. This was a huge improvement over the initial August release which showed zero new jobs created.
When September’s jobs report was released, mortgage rates spiked. This is because of the correlation between jobs and the U.S. economy. There are a lot of economic “positives” when the U.S. workforce is growing.
- Consumer spending increases
- Governments start more projects
- Businesses make more investment
Each of these items leads to additional hiring, and the cycle continues.
Wall Street expects that 90,000 jobs were created in October 2011. If the actual number of jobs created exceeds this estimate, it will be considered a positive for the economy, and mortgage rates should climb as Wall Street dumps mortgage-backed bonds in favor of equities.
Conversely, if the number of new jobs falls short of 90,000, it will be considered a disappointment, and mortgage rates should rise.
There is a lot of risk in floating a mortgage rate today. The Federal Reserve could make a statement that drives rates higher, and Friday’s job report could do the same. If you’re under contract for a home or planning to refinance, eliminate your interest rate risk.
Lock your mortgage rate today.
Start Making Your Mortgage Rate Strategy Now
The Federal Open Market Committee begins a scheduled, 2-day meeting today, the seventh of its 8 scheduled meetings this year, and the eighth Fed meeting overall.
The FOMC is a 12-person sub-committee within the Federal Reserve. It’s the group responsible for setting the nation’s monetary policy and is led by Federal Reserve Chairman Ben Bernanke.
The FOMC’s most well-known role is as the steward of the Fed Funds Rate. This is the overnight rate at which U.S. banks borrow money from each other. The Fed Funds Rate is a unique, “banking” interest rate, and should not be confused with consumer interest rates, a category which includes ”mortgage rates”.
Mortgage rates are not set by the Federal Reserve. Rather, mortgage rates are based on the price of mortgage-backed bonds. If mortgage rates correlated to the FOMC’s Fed Funds Rate, the chart at right would be linear.
That said, the FOMC does exert influence on mortgage markets.
After its FOMC meetings, the Federal Reserve issues a press release to the public. In it, the central banker summarizes economic conditions nationwide, highlighting threats to the economy and areas of strength.
When the Federal Reserve’s statement is generally “positive”, mortgage rates tend to rise. This is because a strengthening economy invites investors to assume more risk, spurring equity markets at the expense of all bonds types, including the mortgage-backed kind.
When bond markets lose, mortgage rates rise.
Conversely, when the Fed is generally negative, bond markets gain, pushing mortgage rates lower throughout Georgia.
A Fed Divided Reaches Comprise
Wednesday, the Federal Reserve released the minutes from its 2-day meeting September 20-21, 2011.
The release shows a divided Fed in disagreement about the current U.S. monetary policy. The group reached compromise for new economic stimulus, however, and maintained its commitment to accommodating interest rates.
Wall Street reacted tepidly to the minutes. Mortgage rates in Blue Ridge, Blairsville and Hiawassee worsened slightly post-release.
The Fed Minutes gets less press than the FOMC’s post-meeting press release, but it’s every bit as important. Because it details the conversations that take place among voting and non-voting Fed members at FOMC meetings, the Fed Minutes is an inside-look at the debates and discussion that lead to new monetary policy.
As examples, here are some of the topics covered at the September FOMC meeting :
- On growth : Economic growth was slow, but “did not suggest a contraction”
- On housing : The market continues to be “depressed by weak demand”
- On rates : The Fed Funds Rate will remain low until mid-2013
Then, with Fed members divided on whether the central bank should add new stimulus, it reached a compromise instead, launching the $400 billion “Operation Twist” program. Operation Twist is meant to lower longer-term interest rates, including mortgage rates.
Since Operation Twist began, mortgage rates are higher by nearly 0.375%.
Also noteworthy within the Fed Minutes was concern for an economic slowdown and how the Federal Reserve may react. According to the record, a slowdown may prompt the Fed to introduce its third round of qualitative easing, or QE3. An out-sized stimulus plan would likely lead rates higher.
Nothing will happen until the Fed’s next meeting, however. Chairman Ben Bernanke & Co meet next November 1-2 for a 2-day meeting..
Freddie Mac’s Mortgage Rates Drop Below 4%
Mortgage rates have dropped past 4 percent.
For the first time in more than 40 years, data from Freddie Mac’s weekly Primary Mortgage Market Survey shows the average 30-year fixed rate mortgage falling below 4 percent, dropping to 3.94 percent nationwide. It’s the lowest average 30-year fixed reading in the survey’s history.
In addition, Freddie Mac shows the 15-year fixed and 5-year ARM making new all-time lows, too, falling to 3.26% and 2.96%, respectively.
It’s a great time to be shopping for a mortgage or buying a home in Hiawassee or Blairsville Georgia. Because mortgage rates are dropping, housing payments are dropping, too. As compared to 8 months ago, for every $100,000 borrowed, homeowners now pay $66 less principal + interest each month.
On a $300,000 mortgage, that’s $71,280 saved in 30 years.
Mortgage rates have been lower for several reasons, some of which include :
- U.S. economic growth has been slower-than-expected
- Uncertainty surrounds Greece and the Eurozone
- The Federal Reserve’s “Operation Twist“
In general, demand for mortgage bonds has been high and that’s caused mortgage rates to fall. It should be noted, however, that although the 30-year fixed rate mortgage fell below 4 percent this week, the amount of discount points required to lock that rate rose by 10 basis points, or $100 per $100,000 borrowed.
Homeowners in the North Georgia Mountains are paying bigger fees for these lower rates. If you plan to move within a few years, these fees may wipe out your low-rate savings.
As you shop for a mortgage, pay attention to more than just rates. Low rates are great, but not when they come with high costs. Talk to your loan officer for help with making a plan than works for you.
Related articles
- Choosing A 15-Year Fixed Rate Mortgage Over A 30-Year Fixed Rate Mortgage (thefrontporchview.com)
- Have Mortgage Rates Hit The Bottom? (thefrontporchview.com)
Explaining The Federal Reserve Statement From September 2011
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:
- Economic growth “remains slow”
- Unemployment rates “remain elevated”
- 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.
The news wasn’t all bad, however.
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 the North Georgia Mountains 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.
What Does It Mean For Rates After The Feds Adjourn?
The Federal Open Market Committee adjourns from a two-day, scheduled meeting today, the sixth of 8 scheduled meetings this year, and the seventh Fed meeting overall.
The FOMC is a designated, 12-person committee within the Federal Reserve, led by Fed Chairman Ben Bernanke. The FOMC is the voting members for the country’s monetary policy. Among its other responsibilities, the FOMC sets the Fed Funds Rate, the overnight rate at which banks borrow money from each other.
Note that the “Fed Funds Rate” is different from “mortgage rates”. Mortgage rates are not set by the Fed. Rather, they are based on the price of mortgage-backed bonds, a security traded among investors.
As the chart at top illustrates, the Fed Funds Rate and conforming mortgage rates in Hiawassee and Blairsville, GA. have little correlation. Since 1990, the two benchmark rates have been separated by as much as 5.29 percent, and have been as close as 0.52 percent.
Today, the separation between the Fed Funds Rate and the national average for a standard, 30-year fixed rate mortgage is roughly 4 percent. This spread will change, however, beginning 2:15 PM ET Wednesday. That’s when the FOMC adjourns from its meeting and releases its public statement to the markets.
There is no doubt that the Fed will leave the Fed Funds Rate in its current target range of 0.000-0.250%; Fed Chairman Bernanke plans to leave the benchmark rate as-is until at least mid-2013. However, the Fed is expected to add new support for markets.
Unfortunately, there are few clues about how the Fed will support markets, and there is no consensus opinion regarding the size of the said support. As a result, mortgage rates should be bouncy today. First, they’ll be volatile ahead of the Fed’s statement. Then, they’ll be volatile post-Fed statement.
Even if the Fed does nothing, mortgage rates will change. This is because Wall Street is prepping for an announcement and — no matter what the Fed says or does — investors will want to react accordingly.
When mortgage markets are volatile, the safest move is to lock your mortgage rate in. There too much risk to float.
