Federal Reserve, FOMC, Mortgage Rates

Mortgage Rate Strategy As Fed Starts 2-Day FOMC Meeting

April 24, 2012 by · Leave a Comment 

Federal Open Market Committee Meeting Aprl 2012The Federal Open Market Committee begins a 2-day meeting today in the nation’s capitol. It’s the group’s third of 8 scheduled meetings this year. Mortgage rates are expected to change upon the Fed’s adjournment.

Led by Chairman Ben Bernanke, the FOMC is a 12-person, Federal Reserve sub-committee. The FOMC is the group within the Fed which votes on U.S. monetary policy. “Making monetary policy” can mean a lot of things, and the action for which the FOMC is most well-known is its setting of the Fed Funds Funds.

The Fed Funds Rate is the overnight interest rate at which banks borrow money from each other. It’s one of many interest rates set by the Fed.

However, one series of interest rates not set by the Fed is mortgage rates. Instead, mortgage rates are based on the prices of mortgage-backed bonds and bonds are bought and sold on Wall Street. There is little historical correlation between the Fed Funds Rate and the common, 30-year fixed rate mortgage rate.

Click here to see today’s mortgage rates.

Fed Funds Rate vs Mortgage Rates 1990-2012

As the chart above shows, since 1990, the Fed Funds Rate and the 30-year fixed rate mortgage rate have followed different paths. Sometimes, they’ve moved in the same direction. Sometimes, they’ve moved in opposite directions. They’ve been separated by as much as 5.29 percent at times, and have been as near to each other as 0.52 percent.

Click here to see today’s mortgage rates.

Today, that spread is roughly 3.65 percent. It’s expected to change beginning 11:30 PM CT Wednesday. That’s when the FOMC will adjourn from its meeting and release its public statement to the markets.

The FOMC is expected to announce no change in the Fed Funds Rate, holding the benchmark rate within in its current target range of 0.000-0.250%. However, how mortgage rates in and around Northwest Indiana and suburbs of Chicago Illinois respond will depend on the verbiage of the FOMC statement. 

In general, if the Fed acknowledges that the U.S. economy is in expansion; growing from job growth and consumer spending, mortgage rates are expected to rise. If the Fed shows concern about domestic and global economic growth, mortgage rates are expected to fall. 

Any time that mortgage markets are expected to move, a safe play is to stop shopping your rate and start locking it. Today may be one of those times.

Click here to see today’s mortgage rates.

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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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