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Posts tagged FOMC,Ben Bernanke,Fed Funds Rate
A Simple Explanation Of The Federal Reserve Statement (August 9, 2011 Edition)
Aug 9th
Tuesday, 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 first time in 5 meetings that the nation’s Central Bank was non-unanimous and the first time since 1992 that the FOMC adjourned with as many as three dissenters.
In its press release, the FOMC had little good to say about the U.S. economy, noting that since its last meeting in July:
- Growth has been “considerably slower” than expected
- Labor market conditions have deteriorated
- Household spendng has “flattened”
The Fed also noted that the housing sector remains depressed.
On the positive side, the Fed said that business investment in equipment and software continues to expand, and that energy costs have dropped and no longer contribute to inflationary pressures on the economy.
In fact, the Fed worries that inflation may be running too low for the country’s good.
To that end, the Federal Reserve has pledged to keep the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″. This is a departure from prior statements in which the Fed gave no such date.
Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in Illinois are improving, but note that sentiment can shift quickly — especially in a market as uncertain as this one.
If today’s mortgage rates look good in your household budget, consider locking in a rate.
The FOMC’s next scheduled meeting is September 20, 2011.
A Simple Explanation Of The Federal Reserve Statement (April 27, 2011 Edition)
Apr 27th
Earlier today, 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 10-0 — the third straight meeting after which the FOMC vote was unanimous.
In its press release, the FOMC noted that since its March 2011 meeting, the economic recovery is proceeding “at a moderate pace” and that labor markets conditions are “improving gradually”. Household spending and business investment “continue[s] to expand” but the housing sector remains “depressed”.
Furthermore, the FOMC’s statement discussed the Federal Reserve’s dual mandate of (1) Managing inflation levels, and (2) Fostering maximum employment. The statement acknowledged recent inflation pressures on the economy, but it expects those pressures — because they’re related to oil and food prices — to be “transitory”. Unemployment remains “elevated”.
The FOMC statement also re-affirms the group’s plan to keep the Fed Funds Rate near zero percent “for an extended period” of time, and to keep its $600 billion bond market support package — more commonly called “QE2″ — intact.
The statement’s verbiage suggests that a third support package may be created after QE2 ends in June 2011, depending on the needs of the economy.
Mortgage market reaction to the FOMC statement has been positive thus far. Mortgage rates in Chicago are unchanged, but leaning lower. And, as always, market sentiment could shift quickly. If you like today’s mortgage rates, consider locking in.
The FOMC’s next scheduled meeting is a 2-day event, June 20-21 2011.
Mortgage Rates — And Home Affordability — At The Whim Of The Federal Reserve
Apr 26th
The Federal Open Market Committee starts a two-day meeting today, the third of its 8 scheduled meetings this year.
The FOMC is a special, 12-person committee within the Federal Reserve. It’s led by Fed Chairman Ben Bernanke and the group is responsible for voting on our nation’s monetary policy. This includes setting the Fed Funds Rate, the rate at which banks borrow money from each other overnight.
The general public tends to confuse the Fed Funds Rate for “mortgage rates” but, as shown in the chart at top, the two interest rates are very different. There is no direct correlation between the Fed Funds Rate and everyday mortgage rates in Chicago.
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 4.625 percent. This spread will widen — or shrink — beginning 12:30 PM ET Wednesday. That’s when the FOMC adjourns and releases its public statement to the markets.
According to Wall Street, there’s a 100% chance that the FOMC leaves the Fed Funds Rate in its current “target range” of 0.000-0.250 percent, the same range in which it’s been since December 2008. Depending on the verbiage in the press release, plus the comments of Fed Chairman Ben Bernanke in his scheduled, 2:15 PM ET press briefing, mortgage rates aren’t expected to steady as well.
If the Fed projects higher growth in late-2011/early-2012, or hints at new market stimuli, expect mortgage rates to rise on concerns about inflation. Inflation is bad for mortgage rates, in general.
On the other hand, if the Fed indicates that the economy is slowing down, or that it plans to withdraw its existing, $600 billion bond market stimulus, look for mortgage rates to fall.
It’s hard to be a home buyer when the Federal Open Market Committee meets. There’s just so much that can change mortgage rates and rising mortgage rates can affect purchasing power in a flash.
In the 6 months since November 2010, home affordability is off 9%.
So, if you’re shopping for mortgages, or just floating a rate, consider getting locked in before the FOMC issues its press release Wednesday. Once the statement hits, mortgage rates could soar.