Fed Funds Rate

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.

Fed Funds Rate

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 Funds 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.

Fed Funds Rate

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!

Fed Funds Rate

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 Funds Rate

It’s Not What The Fed Did, But What The Fed Said Today

Today, in its first meeting in 5 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 

The Fed Fund Rate remains within its target range of 0.000-0.250 percent.

In its press release, the FOMC said that, since April, “the economic recovery is proceeding” and that the jobs market “is improving gradually”. Business spending “has risen significantly”, too, with the exception of commercial real estate.

Today’s statement is the 8th straight press release in which the Fed shows optimism for the U.S. economy, dating back to June 2009.  Since that time, the Fed has terminated all of the programs it created to support the economy through the economic crisis.

The recession is widely believed to be over.

And, although the Fed’s statement acknowledged economic growth, it did highlight lingering threats, too.

1. Employers are still reluctant to hire new workers
2. European debt concerns could spill-over to the U.S.
3. Bank lending is contracting

Also, as expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”, citing that “inflation has trended lower” recently.

Mortgage market reaction has been positive thus far. Mortgage rates in Illinois are slightly improved post-FOMC.

The FOMC’s next scheduled meeting is August 10, 2010.

Fed Funds Rate

The Federal Reserve, Greece and Mortgage Rates…Now What

The Federal Reserve adjourns from a scheduled, 2-day meeting today.  It’s one of 8 scheduled Fed meetings for 2010.

Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.

The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.

The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans.  Prime Rate is equal to the Fed Funds Rate + 3 percent.  Credit card rates, therefore, will likely stay flat today, too.

Mortgage rates, however, should change.  Possibly by a lot.  The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).

The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight various parts of the economy, identifying strengths, weaknesses and probable threats to growth. 

These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip –  mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.

It’s a difficult time to be shopping mortgages in Northwest Indiana.

Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.

Therefore, if you’re actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall.  This is, however, a lot of room for them to rise.

The Fed adjourns at 2:15 PM ET.  Call your loan officer to lock your rate.

Contact James K Barath in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Fed Funds Rate

What Exactly Is the Federal Reserve Trying to Tell Us

Yesterday, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its current target range of 0.000-0.25 percent.

In its press release, the FOMC noted that, since March, the U.S. economy “has continued to strengthen” and that the jobs markets “is beginning to improve”.  This is a step up from the last meeting after which the Fed said jobs were “stabilizing”. 

It also reiterated that business spending “has risen significantly”.

Yesterday’s statement marks the 7th straight press release in which the Fed shows optimism for the U.S. economy. Furthermore, the Fed has now closed all but one of the programs it created to support markets during last year’s financial crisis.

Threats remain to grow, however. The Fed fingered a few:

1. Employers are reluctant to hire new workers
2. High unemployment threatens consumer spending
3. Consumer credit (still) remains tight

Also in its statement, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent “for an extended period”.  This was expected.

Overall, the statement’s tone was positive and the Fed noted that inflation is within tolerance. 

Mortgage market reaction has been muted thus far. Mortgage rates in Crown Point Indiana are unchanged post-FOMC.

The FOMC’s next scheduled meeting is a 2-day affair, June 22-23, 2010.  The 55-day span between meetings will be the FOMC’s longest of 2010.

Contact James K Barath in Crown Point Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Fed Funds Rate

Should You Lock Your Mortgage Rate In Advance Of Tomorrow’s Federal Reserve Announcement?

The Federal Open Market Committee starts a 2-day meeting today in Washington. 

The scheduled get-together ends at 2:15 PM ET Wednesday after which the FOMC will issue a press release to the markets.

Consider locking your mortgage in advance of the press release. 

The FOMC meets 8 times annually and its adjournments are among the biggest market-movers of the year. 

The Fed’s post-meeting press release is a direct look into the mind of the Federal Reserve and Wall Street is looking for clues anywhere it can find them.

After its August 2009 meeting, the FOMC said in its press release:

1. Financial markets have improved, relative
2. Household spending remains constrained
3. Although weak, the economy is “leveling off”

Since then, however, credit risks have lessened on Wall Street, consumer spending have shown signs of life and Fed Chairman Ben Bernanke said the recession is “very likely over”.

This is why tomorrow’s FOMC press release is so important.  Markets don’t expect the Fed to raise or lower the Fed Funds Rate, but they do expect the Fed to shed light on its next series of moves.

If the Fed alludes to inflation and stronger growth ahead, mortgage rates should rise. By contrast, reference to slower growth ahead should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent – the lowest it’s been in history.  However, it’s what the Fed says Wednesday that will matter more than what the its does.

If you’re floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

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