Federal Reserve, FOMC, Mortgage Rates

The Federal Reserve Meets Today: Mortgage Rates Expected To Move

January 25, 2012 by · Leave a Comment 

The Federal Open Market Committee adjourns from a scheduled 2-day meeting today, its the 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.

Interest rate difference between 30-year fixed and Fed Funds Rate 2000-2012

For home buyers and would-be refinancing households in Schererville Indiana, 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.

Historically, there is little correlation between the Fed Funds Rates and 30-year fixed rate mortgage rates throughout Indiana. Going back 20 years, the benchmark rates have been separated by as much as 5.29% and have been as near as 0.52%. 

The spread has even gone negative, most recently in 1979 and 1981 — a period marked by high inflation.

Today, the separation between the Fed Funds Rate and the average, 30-year fixed rate mortgage rate is roughly 3.60%. Beginning at 11:30 AM CT, however, that spread is expected to change. The FOMC will make its statement to the press at that time, and will release its quarterly forecast to the markets.

As Wall Street reacts to the Fed’s press release and projections, mortgage rates will move.

Investors expect the Fed to vote the Fed Funds Rate unchanged from its current range near 0.000 percent, but are unsure of how the Fed will characterize the U.S. economy. If the Fed speaks optimistically on the economy, stock markets should rise and mortgage bonds should fall, driving mortgage rates higher.

Conversely, if the Fed shows concern for future economic growth, mortgage rates should drop. Either way, today figures to be volatile one for mortgage markets. 

When mortgage markets get volatile, the safe play as a mortgage rate shopper is to lock your mortgage rate immediately. There is too much risk in floating your mortgage rate.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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