FOMC

A Simple Explanation Of The Federal Reserve Statement (January 25, 2012)

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:  

1. The housing sector remains “depressed”
2. The unemployment rate remains “elevated”
3. Fixed business investment has “slowed”

On the positive side, the FOMC said that household spending is rising and inflation remains in-check. The group also believes that employment will gradually improve nationwide going forward.

The Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs.

Immediately following the FOMC’s statement, mortgage markets rallied, pressuring mortgage rates to fall in and around Crown Point Indiana. 

Mortgage rates remain near all-time lows and, for homeowners willing to pay points plus closing costs, conventional, 30-year fixed rate mortgages can be locked at below 4 percent. If you’re in the process of buying or refinancing a home in Northwest Indiana, it’s a good time to lock a mortgage rate with your lender.

The FOMC’s next scheduled meeting is a one-day event slated for March 13, 2012.

The Federal Reserve Meets Today: Mortgage Rates Expected To Move

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.

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.

Fed Minutes Show an Improving U.S. Economy Threatened by the Eurozone

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 U.S. economy could be impacted by fallout. 

Other meeting consensus included : 

• On growth: The economy is expanding, despite slowing in “global economic growth”
• On housing: Data suggests the “depressed” market “could be improving”
• On inflation: Prices are stable, and remain within tolerance levels

The Fed’s analysis was of little surprise to Wall Street, and going forward, Fed Chairman Ben Bernanke wants to keep it that way. The Fed Minutes contained a passage regarding market communication, and how the Fed will be more pro-active about it in the future. 

With the release of its minutes, in a section called “Market Policy Communications”, the Federal Reserve showed its plans to release 4 times annually its economic forecasts, and plans for the Fed Funds Rate. This signals in a shift in Federal Reserve transparency.

The Federal Reserve will begin including the forecast in its economic projections beginning after its next policy meeting, January 24-25, 2012.

Mortgage rates in Indiana were little changed after the release of the Fed Minutes.

Federal Reserve Announces New Twist to Stimulate Economy

The Federal Open Market Committee (FOMC) gathered for the 6th of eight scheduled meeting for 2011.

Since the last FOMC meeting in August, the economy failed to add any new jobs and the unemployment rates has remained above 9 percent. Growing fears of another recession have been fueled by the poor performance throughout every sector of the economy.

Economists and financial analysts worldwide have been on the edge of their seat waiting to hear how the FOMC intends to prevent another recession while keeping a lid on inflation.

Why should Northwest Indiana and Chicago Illinois home buyers and homeowners even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the committee had this to say about the economy.

Positive economic factors:

• Household spending has been increasing
• Inflation has moderated from earlier peaks
• Longer-term inflation expectations have remained stable

Negative economic factors:

• Economic growth remains slow
• Overall labor market conditions continue to weaken
• Unemployment rate remains elevated
• Household spending has flattened
• Investment in nonresidential structures is still weak
• Housing sector remains depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 7-3 in favor of:

1. extend the average maturity of its holdings of securities
2. reinvest principal payments from its holding of agency debt and agency mortgage-backed securities in agency mortgage-backed securities
3. maintain the target range for the federal funds rate at 0 – 0.250%

The Federal Reserve also elaborated on how they will extend the average maturity of its holdings of securities.

The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.

What does all this really mean to Northwest Indiana and Chicago Illinois home buyers and homeowners?

The Federal Reserve is running out of options and tools to foster maximum employment. The economy appears to be heading for another recession despite the best efforts of the US Treasury and Congress.

This new initiative (aka. Operation Twist) by the Federal Reserve appears to be a re-balancing of short-term debt and long-term debt on the Fed’s portfolio. The Fed is attempting to refinance their debt overall a longer time frame as to minimize the cash flow crunch in the same manner as consumers who refinance short-term debt into longer-termed mortgages.

At the end of the day, will the Fed have enough money to accomplish their objectives of paying bills while paying down the existing debt? Only time will tell. In the mean time, the Federal Reserve will take advantage of the low interest rate environment as well.

Likewise, home buyers and homeowners in Northwest Indiana and Chicago Illinois should capitalize on low home loan rates now before they end. Call or text me at 512-522-7284 to discuss your home loan options!

Federal Reserve Vows to Keep Low Rates Through Mid-2013

The Federal Open Market Committee (FOMC) gathered for the 5th of eight scheduled meeting for 2011.

The biggest announcement since the last FOMC meeting in June, which there have been many, is obviously the downgrade of the US credit rating by Standards & Poor’s over the weekend.

This downgrade has devalued the US dollar and has had immediate impact on stocks worldwide. Combine our domestic woes with the debt crisis in Europe and it is no surprise why stock investors are running scared.

Why should Northwest Indiana and Chicago Illinois home buyers and homeowners even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the committee had this to say about the economy.

Positive economic factors:

• Business spending on equipment and software continues to expand
• Longer-term inflation expectations have remained stable
• Underlying inflation has moderated from earlier peaks

Negative economic factors:

• Household spending has flattened
• Investment in nonresidential structures is still weak
• Overall labor market conditions deteriorating
• Housing sector remains depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 7-3 in favor of:

1. maintain the target range for the federal funds rate at 0 – 0.250%
2. maintain its existing policy of reinvesting principal payments from its securities holding

The Federal Reserve also elaborated on how long a near zero percent Fed Funds Rate would last.

Committee currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

What does all this really mean to Northwest Indiana and Chicago Illinois home buyers and homeowners?

The Federal Reserve is running out of options and tools to foster maximum employment. The economy appears to be heading for another recession despite the best efforts of the US Treasury and Congress.

Even with the US credit downgrade, mortgage bonds are in high demand forcing home loan rates lower. It is hard to forsee how mortgage rates could get any lower based on everything that is happening domestically and worldwide. One hint of good economic news and mortgage rates could reverse course instanteously.

Therefore, home buyers and homeowners in Northwest Indiana and Chicago Illinois should take quick action to capitalize on low home loan rates before they end. Call or text me at 512-522-7284 to discuss your personal situation and your home loan options!

Fed Wants More Stimulus Despite Positive Economic Signs

The Federal Open Market Committee (FOMC) gathered for the 1st of eight scheduled meeting for 2011.

Since the last FOMC meeting in December the US economy has been providing positive signals on the scope and pace of a jobless recovery. The stock market has enjoyed a nice rally since the beginning of 2011 as well.

The biggest announcement from the December FOMC meeting was the Federal Reserve’s commitment to Quantitative Easing (QE2). There has been plenty of debate since the December 14th FOMC meeting about the effectiveness QE2.

Why should home buyers and homeowners in Northwest Indiana even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the committee had this to say about the economy.

Positive economic factors:

• Household spending picked up late last year
• Business spending on equipment and software is rising
• Longer-term inflation expectations have remained stable
• Underlying inflation have been trending downward

Negative economic factors:

• Household spending…constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
• Business spending…investment in nonresidential structures is still weak
• Employers remain reluctant to add to payrolls
• Housing sector continues to be depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 11-0 in favor of:

1. maintain the target range for the federal funds rate at 0 – 0.250% for an extended period
2. maintain its existing policy of reinvesting principal payments from its securities holdings
3. intends to purchase $600 billion of longer-term Treasurys by the end of the 2nd quarter 2011

The Federal Reserve reaffirmed it’s commitment to Quantitative Easing 2 and is prepared to see it through to the end. The FOMC also acknowledged that the economic recovery is continuing, but not at a pace sufficient to improve the labor market.

What does all this really mean to home buyers and homeowners in Northwest Indiana?

The Federal Reserve is running out of options and tools to keep interest rates at historic lows. The rising trend in home loan rates since the last FOMC meeting in December 2010 is proof that worldwide bond markets are becoming numb to the FOMC’s influence. Therefore, home buyers and homeowners in Northwest Indiana should take quick action to capitalize on low home loan rates before they end.

Federal Reserve Confirms Economic Recovery with Caution

As the year comes to an end, the Federal Open Market Committee (FOMC) gathered for the 8th and final schedule meeting for 2010.

Since the last FOMC meeting in November the US economy has been providing mixed signals on the scope and pace of a jobless recovery. The biggest announcement from the November FOMC meeting was the launch of a second round of Quantitative Easing (QE2). Many questions have been circulating since November 3rd about the effectiveness QE2.

Why should home buyers and homeowners in Northwest Indiana even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the committee had this to say about the economy.

Positive economic factors:

• Household spending is increasing at a moderate pace
• Business spending on equipment and software is rising
• Longer-term inflation expectations have remained stable
• Underlying inflation have continued to trend downward

Negative economic factors:

• Household spending…constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
• Business spending…less rapidly than earlier, while investment…continues to be weak
• Employers remain reluctant to add to payrolls
• Housing sector continues to be depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 10-1 in favor of:

1. maintain the target range for the federal funds rate at 0 – 0.250% for an extended period
2. maintain its existing policy of reinvesting principal payments from its securities holdings
3. intends to purchase $600 billion of longer-term Treasurys by 2nd quarter 2011 ($75 billion per month)

The Federal Reserve reaffirmed it’s commitment to Quantitative Easing 2 and is prepared to see it through to the end. The FOMC also acknowledged that the economic recovery is continuing, but not at a pace sufficient to lower the unemployment rate.

What does all this really mean to home buyers and homeowners in Northwest Indiana?

The Federal Reserve is running out of options and tools to keep interest rates at historic lows as worldwide bond markets are becoming numb to the FOMC’s influence. Therefore, home buyers and homeowners in Northwest Indiana should take quick action to capitalize on low home loan rates before they end.

What’s Humpty Hump Have To Do With the Federal Reserve

“Stop whatcha doin’, ’cause I’m about to ruin, the image and the style that ya used to. I look funny, but yo I’m makin’ money see, so yo world I hope you’re ready for me.”

These famous lyrics which were sung by Humpty Hump in his infamous 1989 hip hop song “The Humpty Dance” seems so appropriate for what the Federal Reserve had to say from the Federal Open Market Committee (FOMC) meeting, the 7th of eight scheduled meetings and eighth overall for 2010.

Financial analysts and economic forecasters worldwide attempt to guesstimate what the Federal Reserve will or will not say in their policy statement prior to the meeting. Often times it comes down to a single word that has been modified in the policy statement.

What’s the purpose of these meetings? Why all the scrutiny of words?

Why should home buyers and homeowners in Northwest Indiana even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the FOMC had this to say about the economy.

Positive economic factors:

• Household spending is increasing gradually
• Business spending on equipment and software is rising
• Longer-term inflation expectations have remained stable
• Underlying inflation has trended lower in recent quarters

Negative economic factors:

• Household spending…constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
• Business spending…less rapidly than earlier, while investment…continues to be weak
• Employers remain reluctant to add to payrolls
• Housing starts are at a depressed levels

Based on the Federal Reserves interpretation of the economy, they voted 10-1 to do the following:

1. maintain the target range for the federal funds rate at 0 – 0.250% for an extended period
2. maintain its existing policy of reinvesting principal payments from its securities holdings
3. expand it holdings of securities by $600 billion by 2nd quarter 2011 ($75 billion per month)

Ready or not, laugh if you want to, the Federal Reserve is taking bold steps to combat slow employment and economic growth. Only time will tell if the markets were ready for this new round of quantitative easing.

What does all this really mean to home buyers and homeowners in Northwest Indiana?

The Federal Reserve is still committed to keep interest rates low until they are confident that the economy is reaching their ideal, economic target growth rate. Thankfully, home buyers and homeowners in Northwest Indiana still have time to take advantage of historic low mortgage interest rates.

Can You Hear What The Fed Said That Will Impact Housing

“When E.F. Hutton talks, people listen.” This was true in the 1980′s.

Today however it’s all about what the Federal Reserve had to say from the Federal Open Market Committee (FOMC) meeting, the 6th of eight scheduled meetings and seventh overall for 2010.

Financial analysts and economic forecasters worldwide attempt to guesstimate what the Federal Reserve will or will not say in their policy statement prior to the meeting. Often times it comes down to a single word that has been modified in the policy statement.

What’s the purpose of these meetings? Why all the scrutiny of words?

Why should home buyers and homeowners in Northwest Indiana even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve Banks intend to control the supply and demand of money. It is this monetary policy that can and will dictate future economic growth.

According to FOMC Statement Press Release from today, the FOMC had this to say about the economy.

Positive economic factors:

• Household spending is increasing gradually
• Business spending…is rising
• Bank lending has continued to contract, but at a reduced rate in recent months
• Underlying inflation has trended lower

Negative economic factors:

• Household spending…constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
• Business spending…less rapidly than earlier, while investment…continues to be weak
• Employers remain reluctant to add to payrolls
• Housing starts are at a depressed levels

Based on the Federal Reserves interpretation of the economy, they voted 8-1 to do the following:

1. maintain the target range for the federal funds rate at 0 – 0.250% for an extended period
2. maintain its existing policy of reinvesting principal payments from its securities holdings

The Federal Reserve is cautiously concerned about unemployment and falling prices. Accordingly, the Federal Reserve is ready to provide additional support to inject new life into today’s questionable economic recovery.

What does all this really mean to home buyers and homeowners in Northwest Indiana?

The Federal Reserve is still committed to keep interest rates low until they are confident that the economy is reaching their ideal, economic target growth rate. Thankfully, home buyers and homeowners in Northwest Indiana still have time to take advantage of historic low mortgage interest rates.

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