Federal Open Market Committee

My Mortgage Rate Lock Strategy Before FOMC Press Release

The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It’s the first of 8 scheduled meetings for the policy-setting group in 2010.

The group adjourns at 1:15 PM CDT.

As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country’s current economic condition, and the outlook for the near-term future.

The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up.  Every word, sentence and phrase is carefully disected in the hope of gaining an investment edge over other active traders.

It’s for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically rebalancing its bets.

Today should be no different for home loan shoppers in Northwest Indiana.

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 it does.

After the Fed’s last meeting in December, it made several observations:

1. The jobs market is getting “less worse”
2. The housing sector is making improvements
3. Financial markets are stabilizing further

The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead.  Furthermore, inflation remains in check.

As compared to December’s press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates to rise for home buyers in Northwest Indiana as Wall Street moves its money from bonds to stocks.

Conversely, reference to slower growth in 2010 should lead rates lower.

We can’t know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 1:15 PM CDT Wednesday. After that, what happens to rates is anyone’s guess.

Contact Benchmark Mortgage in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Federal Open Market Committee

Surprise! Federal Reserve Is Uncertain About The Economy

Both mortgage rates and home affordability took a turn for the better Wednesday after the Federal Reserve released its December 15-16, 2009 meeting minutes.

The Fed Minutes is a follow-up piece to the post-FOMC meeting press release. But whereas the press release is succinct and to-the-point, the minutes are lengthy and often meandering.

As a comparison, December’s press release contained 535 words. December’s minutes had 6,260. 

But these “extra words” aren’t superfluous. They’re actually very important to homeowners. Because the Federal Reserve’s internal debates help to shape Wall Street expectations, it doesn’t take much for those conversations to have a trickle-down effect on Main Street.

For example, after the December meeting, the Fed said that economic growth is steady, inflation is in check, and an orderly wind-down of mortgage market support was underway. A look at the minutes, though, showed some disconnect.

Some Fed members believe rising commodity prices could lead to stronger-than-expected, and others think that improvement is housing could be “undercut” by a pull-back in government stimulus.

Overall, the Fed appears optimistic about the economy, but not as optimistic as on December 16. Mortgage markets responded favorably to the minutes and mortgage pricing improved.

Although rates remain higher as compared to early-December, pricing has been on a good run this week. If you’re under contract for a home or just looking to refinance, now may be a good time to lock.

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

Federal Open Market Committee

Putting Today’s FOMC Statement into Plain English

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy “has continued to pick up”, that the jobs markets is getting better, and that housing market has shown “some signs of improvement” lately.

It’s the fourth straight statement in which the Fed speaks optimistically about the U.S. economy - a signal that the worst of the recession is likely behind us.

The economy isn’t without threats, however, and the Fed identified several, including:

1. Tight credit conditions for consumers
2. Reluctancy of businesses to hire new workers
3. Lower overall housing wealth

The message’s overall tone remained positive, however and inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.  That plan due to expire at the end of March 2010 should be noted by today’s homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is negative.  Mortgage rates are rising this afternoon.

The FOMC’s next scheduled meeting is January 26-27, 2010.

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

Federal Open Market Committee

The Federal Reserve’s Relationship To Mortgage Rates

The Federal Open Market Committee meets today for the last time in 2009.  It’s a 2-day meeting and the Fed is expected to leave the Fed Funds Rate near 0.000 percent.

But that doesn’t mean mortgage rates won’t change.

See, a major misperception among the public is that the Federal Reserve sets mortgage rates. That’s false. Mortgage rates are based on the price of mortgage-backed bonds.

As an example, since 2000, the Fed Funds Rate and the 30-year fixed rate mortgage have been within 1 percent of each other at times, and as far apart as 5 percent at others. 

If there was a direct relationship between the two, such a spread would be impossible.

The Federal Reserve doesn’t set mortgage rates. Wall Street does. However, whenever the Fed adjourns from its meetings, mortgage rates are susceptible to change.

For home buyers and rate shoppers, this week’s Fed meeting takes on added significance.

Over the last half-year, the Fed has used its post-meeting press releases to acknowledge an improving economy in which growth is tempered by job loss and tepid spending. In November, though, net job gains nearly went positive and Retail Sales data proved strong.

If the Fed gets more positive in its message tomorrow, mortgage rates will suffer. This is because Wall Street will use the Fed’s position on the economy as a reason to buy stocks. Some of the cash to fuel those buys will come from the mortgage bond market.

As extra bond supply hits Wall Street, mortgage rates go up.

Similarly, if the Fed’s message goes negative on the economy, investors are expected to sell their stock positions in favor of buying bonds. This makes rates go down.

So, the Federal Reserve doesn’t make mortgage rates, but it does exert an influence on them. In other words, rate shoppers would be wise to watch for the FOMC’s 2:15 PM adjournment. Even though the Fed Funds Rate is expected to remain unchanged, mortgage rates certainly are not.

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

Federal Open Market Committee

Lock Your Home Loan Rate Before 1:15 PM CST Today

The Federal Open Market Committee caps off a scheduled, 2-day meeting today in the nation’s capital, its 8th meeting of the year.

The group adjourns at 1:15 PM CST and, as is customary, will issue a press release reviewing its monetary policy and the health of the U.S. economy. 

The FOMC’s post-meeting statements are brief but comprehensive. They’re a window into the mind of the Federal Reserve and Wall Street picks apart every sentence for clues.

It’s why FOMC meetings tend to shake up the mortgage markets – for good and for bad. 

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

1. Financial markets have improved
2. Housing activity has increased
3. Economic activity has “picked up”

Since September, the momentum has picked up.  Credit risks have reduced further, home sales are surging, and, although unemployment remains high, the Fed remains optimistic about a full economic recovery.

Today’s FOMC press release will be closely watched. If the Fed alludes to strong growth with inflation in 2010, mortgage rates should rise. Reference to slower growth 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 it 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 1:15 PM CST today.

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

Federal Open Market Committee

The Fed Thinks The Economy Is Improving And What It Means For Home Affordability

Mortgage rates are higher after the Federal Reserve released the internal notes of its September 22-23, 2009 meeting.

Known as the ”Fed Minutes”, the report details the conversation and cross-currents that led to the Federal Reserve’s decision to vote “unchanged” on the Fed Funds Rate after its last meeting.

The Fed Minutes are the lengthy companion to the more famous, succinct post-meeting press release.

As a comparison:

• Press Release: 383 words
• Minutes: 6934 words

The extra level of details is a big deal because Wall Street is perpetually in search of clues about what the Federal Reserve is going to do next.

In the past week, multiple Federal Reserve members hinted that the Fed Funds Rate may rise as early as April 2010.  Fed Chairman Ben Bernanke even alluded to it, too.

The minutes revealed that the economy may improve even faster than was previously expected, too.

These acknowledgements are part of the reason why mortgage rates are up. Because the Fed Funds Rate rises to accommodate a growing economy, the prospect of economic recovery is drawing money into the stock market and away from mortgage-backed bonds.

Less demand for bonds means a lower prices which, in turn, leads to higher rates.

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

Federal Open Market Committee

A Simple Explanation of Today’s Federal Reserve Statement

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is ”leveling off” and that financial markets continue to improve.

The change in verbiage is the rosiest from the Fed since the start of the recession and it may signal that the downturn’s end is near.

That said, the Fed highlighted lingering economic soft spots that could still impact a recovery through the end of 2009 and into 2010.

1. Ongoing job losses
2. Reduced “housing wealth”
3. Tight credit conditions

Furthermore, rising energy costs remain a threat to inflation.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.

Market reaction to the Fed’s press release is muted.  With no real change in message and a basic confirmation of what most investors already knew, Wall Street sees no reason to panic.  Mortgage rates are unchanged.

The FOMC’s next scheduled meeting is September 22-23, 2009.

Federal Open Market Committee

Why You Need to Lock Your Mortgage Rate within the Next 29 Hours

The Federal Open Market Committee kicks off a two-day meeting this morning.

It’s one of 8 scheduled meetings the FOMC holds annually.

The FOMC purpose is to discuss the nation’s economic health and, as appropriate, makes new policy that either stimulates or retards economic growth.

The FOMC’s most well-known tool for reaching this goal is the Fed Funds Rate, currently stationed in a highly-stimulative range of 0.000 to 0.250 percent.

Recent data suggests that the economy is recovering, but as of this morning, Wall Street expects the FOMC to leave the Fed Funds Rate as-is, in its current range. 

However, it’s not what the Fed does at its adjournment that should matter to today’s rate shoppers and home buyers — it’s what the Fed says.

At 2:15 PM Wednesday, the Federal Reserve will issue a statement about the U.S. economy with the policy-making body’s outlook for the rest of 2009 and 2010.  If the FOMC’s overall message is one of economic strengthening, expect stock markets to rally and mortgage markets to sink on the news.

This would push mortgage rates higher.

On the other hand, if the FOMC alludes to weakness in labor markets and capital investment, it should help buoy rates lower.

The Federal Reserve does not control mortgage rates, but it can definitely exert an influence.  For this reason, floating a mortgage rate into Fed’s official announcement is risky.  Moreover, given the recent momentum in mortgage rates and in the markets, it seems more likely that rates could go up versus come down.

The Fed’s press release hits the wires at 2:15 PM ET Wednesday.  If you’re the cautious type, consider locking your mortgage rate prior to its release.

Federal Open Market Committee

How The Federal Reserve Could Swing Mortgage Rates This Afternoon

The Federal Reserve adjourns from its two-day meeting this afternoon. It’s one of 8 scheduled meetings each year for the Federal Open Market Committee.

Like all FOMC get-togethers, the purpose of the meeting is to discuss financial and economic conditions in the U.S., and to make new policy to stimulate or retard economic growth, when necessary.

The Federal Reserve’s main tool for reaching this goal is the Fed Funds Rate.

When the Fed lowers the Fed Funds Rate, growth is stimulated. When the Fed raises it, growth is slowed. The Fed has other tools at its disposal, of course, but the Fed Funds Rate is the most common and most well-known.

Fed meetings are highly anticipated events to markets because the central bank’s can change the course of the U.S. economy with just a statement. As a result, traders tend to get jittery in advance of a Fed press release which often leads to erratic trading patterns.

With the economy continuing to teeter between growth and recession, the Fed has pledged to hold the Fed Funds Rate steady for as long as necessary. Therefore, it won’t be what the Fed does that could move mortgage rates this afternoon; it’ll be what the Fed says.

Post-meeting, the Federal Reserve will publish a press release summarizing the current economic conditions and the biggest longer-term risks that exist. If growth and inflation are identified as threats for late-2009 and 2010, mortgage rates will rise. This is because inflation is linked to higher mortgage rates.

The Fed’s press release hits the wires at 2:15 PM ET today. If you’re the cautious type, consider locking your mortgage rate prior to the release.

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