It’s no surprise that the Federal Reserve left the funds rate at the current lows of 0 – 0.25% on the heals of continued weak housing data. What investors are looking for is “what” is being said in the FOMC Statement that is released in conjunction with their rate decision.
If you have a home equity line of credit that is tied to the prime rate, your rate should be unchanged (for now). Otherwise, this decision does not have a direct impact on mortgage rates. It does influence the markets (stocks and bonds) which impacts mortgage rates.
Here’s what I extracted from today’s Statement:
Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit….employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months….subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
Prior to the FOMC Statement, mortgage backed securites are flat (but still at record levels with very low mortgage rates). Follow me on Twitter to see live rate quotes. If I have intraday rate changes today, I’ll update this post.
The FOMC wrapped up their two day meeting leaving the Funds Rate unchanged. The target rate is remaining at 0-0.25%. Now that this decision has been formally announced, everyone will be reviewing the Fed’s statement for clues on when they will begin to raise the Fed Funds Rate.
From today’s FOMC Statement:
…the Committee expects that inflation will remain subdued for some time.
As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
With the Fed’s key rates all ready at a rock bottom 0-0.25%, no one anticipates rates to be lowered. Any reaction will be from the release of their announcement which is anytime.
Dan Green, one of my favorite mortgage bloggers, is documenting the impact of today’s Fed announcement to mortgage rates via Twitter. Check it out.
I’ll update this post in a few moments with my two cents following the FOMC announcement.
Update 11:20 am.
The Fed leaves the Funds Rate unchanged stating that “the economy has weakened furthe”r since their last meeting in December. They also reaffirmed their committment to continue buying mortgage backed securities:
“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant.”
Click here for today’s FOMC Statement and be sure to follow Dan Green’s reporting on the reaction of mortgage backed securities.
From the FOMC press release:
“The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent….
As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.
…In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent.”
Mortgage rates should continue to improve with the purchase of MBS. This is why you need to do as Kenneth Harney recommends in this Sunday’s paper:
“Ask your broker or loan officer whether you can lock in today’s rate but still have the ability to move down should cheaper money become available to you.
Not all lenders can accommodate such requests. Some brokers offer 60-day locks with that option; others may charge you”.
The FOMC, during a scheduled meeting, elected to reduce the Fed Funds rate by 0.5% from 1.5% to 1.00%. Unless you have a HELOC that is floating (attached to the Prime Rate) this does not directly impact your mortgage interest rates. However, it will influence mortgage rates based on how traders react (50 basis points is what was expected). If you’re a long time reader of Rain City Guide, you’ve all ready heard this song and dance.
FOMC Press Release
This morning, the FOMC cut the Fed Funds rate 0.5% to 1.5% in a globally coordinated move in advance of the scheduled FOMC meeting October 28-29, 2008. Another rate cut at the scheduled meeting is not out of the cards.
From the Press Release:
“Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.
Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions….
Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
The FOMC does not directly control mortgage interest rates, which are based on mortgage backed securities (bonds). Actions of the Fed does influence mortgage interest ratesas traders/markets will react accordingly. HELOCs based on the Prime Rate (which follows the Fed Funds Rates) will enjoy a lower rate from this move (if the rate is unfixed).
Mortgage interest rates are for the most part unchanged…but the day is young! The markets continue to be very volatile. The DOW is currently down over 200. Treasury Secretary Paulson will be speaking later this afternoon…which may impact markets.
I’ll be posting a rate update tomorrow at Rain City Guide…if you can’t wait, then check out my live rate quotes.
The markets anticipated the FOMC to leave the Fed Funds rate alone at 2% and that’s just what they did. The markets are reacting accordingly by not swinging drastically either way. The DOW is enjoying triple digit gains while oil has been under $120. What does this mean to mortgage interest rates?
As you know, the FOMC does not directly control mortgage interest rates as mortgage interest rates are based on bonds–mortgage backed securities (MBS). Traders will react to what the FOMC does and does not do and THIS will impact mortgage interest rates.
The FOMC press release states:
“Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports”. I’m wondering how much of the growth in consumer spending is from the economic stimulus checks?
This statement is quickly followed with: “…labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters”.
Bonds react negatively to inflation, I’m anticipating that we will see mortgage rates continue to trend higher. Here’s a bit from the FOMC regarding the “i-word”:
“Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.”
You can read today’s FOMC statement here.
PS: As the Prime Rate is tied to the Fed Funds Rate, your HELOC is unchanged for now.
The FOMC cut the Funds Rate another 0.25% to 2.00% based on an 8-2 vote. Remember, this does not mean that the 30 year fixed rate is now 0.25% lower. This does mean that if you have a HELOC that is attached to Prime (and it’s not fixed), your rate will go down 0.25%. Prime will be reduced to 5.00%.
The FOMC also reduced the Discount Rate 0.25% to 2.25%.
The Fed Statement regarding today’s rate cuts will have a more dramatic impact mortgage rates (mortgage backed securities).
“Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters….
The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices…”
The 0.25% rate cut was highly anticipated and all ready priced into the market. We’ll see how bonds react once the markets have a chance to absorb the statement and Fed actions today. This week will remain very volatile with rates…tomorrow is loaded with economic indicators and Friday, we have the big daddy: The Jobs Report.
Mortgage rates have been very volatile these past few days. Yesterday morning, I posted that the 30 year conforming fixed was under 5% and by the end of yesterday, mortgage rates had increased by 0.375% to rate or around 1% in fee.
Rate shoppers lost out big time if they did not lock.
Rates are continuing to rise at this time. Please don’t dilly dally with your mortgage interest rates. There are fewer Mortgage Professionals to assist you in our current market and many of us experienced (and I’m still seeing it today) banks being “clogged” with people trying to lock…websites “down for maintainance”…etc. By the time a Mortgage Professional can get through to lock in a loan, the rate is gone. Bam.
Next week has offers a full menu of events that promise to impact mortgage interest rates:
- FOMC Meeting on Wednesday, January 30th. (If the Fed drops the Funds Rate…mortgage rates may rise).
- Thursday, January 31 will bring us several economic reports which will indicate inflationary levels such as the PCE and the Chicago PMI.
- And as next Friday is the first Friday of the month, we will wrap up the week with the Jobs Report.
Again, I highly recommend that you lock in your interest rates for conforming loans and make sure it’s for enough time for your transaction to close. A possible bright spot: the conforming loan limit may be increased…no promises but this will be great help for the JUMBO market from $418,000 – $620,000.
Bye for now!
Update January 24, 2008 at 2:55 p.m.: I just priced the 30 year fixed conforming at 1% origination/discount…I can barely lock in 5.5% (APR 5.642%) based on my usual criteria for “Friday’s Rates” (which I will be posting tomorrow). Is it 5 yet? 😉