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13 09, 2012

FOMC Expected To Announce New Stimulus Today

FFR vs 30-year FRM

The Federal Open Market Committee ends a 2-day meeting today, the group’s sixth of 8 scheduled meetings this year. As a home buyer or would-be refinancer, be ready for mortgage rates to change.

The Federal Open Market Committee is a 12-person sub-committee of the Federal Reserve. Led by Fed Chairman Ben Bernanke, it’s the group within the Fed tasked with voting on U.S. monetary policy.

The act for which the FOMC is most well-known is its management of the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight. It’s one of several interest rates under Federal Reserve management.

“Mortgage rates”, however, is not among them.

The Federal Reserve does not set or make mortgage rates — Wall Street does. Further, there is no historical correlation between the Fed Funds Rate and the average conforming 30-year fixed rate mortgage rate. At times, the two benchmark rates move in the same direction. Other times, they diverge.

They’ve been apart by as much as 5.29 percent, and have been as near as 0.52 percent.

Today, the spread between the Fed Funds Rate and the 30-year fixed rate mortgage rate is roughly 3.34%. That will change beginning at 12:30 PM ET today. This is the time at which the FOMC adjourns and releases its public statement to the markets.

The FOMC is expected to announce no change in the Fed Funds Rate, leaving it within its current target range of 0.000-0.250%. How mortgage rates respond to the Fed, though, will depend on whether the nation’s central banker adds new market stimulus in the form of a third round of quantitative easing.

If the Fed adds new stimulus and it’s deemed large enough to be propel the economy ahead, stock markets will gain and bond markets should, too. This would lead mortgage rates lower. Conversely, if the size of the stimulus is deemed too small to be effective, mortgage rates will rise. Maybe by a lot.

24 08, 2012

Mortgage Rates Dropping After Release Of Fed Minutes

Fed minutes August 2012 Eariler this week, the Federal Reserve released the minutes from its 2-day meeting which ended August 1, 2012. Since the release, mortgage rates have dropped.

The Fed Minutes are released on a schedule, three weeks after the FOMC adjourns from one of its 8 scheduled meetings of the year.

The Fed Minutes are meeting minutes; like you’d see after a corporation shareholder meeting, or after a condo board meeting. Specifically, the Fed Minutes details the conversations among Federal Reserve members which shape our nation’s economic policy.

The most recent Fed Minutes show a central bank closer to adding new market stimulus that previously believed.

At its last meeting, the Federal Reserve’s debate focused on the rate of economic growth and whether it was occurring too slowly to be long-lasting. The Fed appears to think so. Without a “substantial and sustainable strengthening” in the pace of economic expansion, it said, additional monetary stimulus would be “warranted fairly soon”.

Other notes from within the Fed Minutes included :

On employment : Unemployment rates will “decline only slowly”
On housing : The market appears “to have improved, somewhat”
On inflation : Retail energy costs are keeping consumer prices low

However, the Fed expressed an “unusually high level of uncertainty” about its assessments owing to the ongoing European sovereign debt problems. “Spillovers” remain possible and default threats continue to weigh on markets.

The Federal Reserve’s next scheduled meeting is September 12-13, 2012.

Since the minutes were released — and for the first time this month — mortgage rates made a big move lower. This is in contrast to the rest of August through which mortgage rates have climbed steadily.

According to Freddie Mac, on August 1, the average 30-year fixed rate mortgage rate was 3.49% nationwide. Today, the rate is 3.66%. Between now and the Fed’s next policy-making meeting September 13, though, mortgage rates are subject to change. If today’s mortgage rates fit your budget, consider locking in.

1 08, 2012

Simple Explanation Of The Federal Reserve Statement (August 1 , 2012)

Putting the FOMC statement in plain English The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday. The vote was nearly unanimous.

Only one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008.

In its press release, the Federal Reserve noted that the U.S. economy has “decelerated somewhat” since January. Beyond the next few quarters, though, the Fed expects growth to “remain moderate” and then gradually pick up.

There was no mention of strain in global financial markets and its threat to the U.S. economy, as the Fed had made in its last two post-meeting press releases.

The Fed’s statement also included the following observations about the economy :

Household spending is “rising at a somewhat slower pace”
Inflation has declined, mostly on lower oil and gas prices
Unemployment rates remain “elevated”

Furthermore, the Fed addressed the housing market, stating that, despite signs of improvement, the sector overall remains “depressed”.

The biggest news to come out of the FOMC meeting, though, was that there was no news.

First, the Federal Reserve is leaving its “Operation Twist” program in place. Operation Twist sells shorter-term securities off the Federal Reserve’s balance sheet, using the proceeds to purchase longer-term securities. This move puts “downward pressure on longer-term interest rates” and makes “broader financial conditions more accommodative.”

Second, the Fed re-iterated its pledged to keep the Fed Funds Rate at “exceptionally low” levels at least through late-2014.

And, third, to Wall Street’s surprise, there was no announcement of a third round of quantitative easing, a market stimulus plan by which the Federal Reserve buys U.S. treasuries and mortgage-backed bonds on the open market. QE3 would have likely led mortgage rates lower.

The FOMC’s next scheduled meeting is a two-day event slated for September 12-13, 2012.

Mortgage markets are rising post-FOMC.

31 07, 2012

Planning Ahead For The Federal Reserve’s Next Move

Fed Funds Rate v 30-Year Fixed Rate In Washington, D.C. today, the Federal Open Market Committee (FOMC) begins a 2-day meeting, its fifth of 8 scheduled meetings this year.

Mortgage rates are expected to change upon the FOMC’s adjournment. Rate shoppers and home buyers would do well to be alert.

The Federal Open Market Committee is a rotating 12-person subcommittee within the Federal Reserve. It’s the group which makes U.S. monetary policy.

“Making monetary policy” has many meanings but the action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the prescribed interest rate at which banks borrow money from each other overnight.

Since late-2008, the Fed Funds Rate has been near zero percent.

The Fed Funds Rate and Freddie Mac’s 30-year fixed rate mortgage rate move along different paths. Sometimes, the two converge. Other times, they diverge. They’ve been separated by as much as 529 basis points in the past 12 years, and they’ve have been as near to each other as 52 basis points.

Clearly, there’s no correlation between the Fed’s Fed Funds Rate and the common 30-year mortgage. However, with its words, the Federal Reserve can influence the direction in which mortgage rates move — on occasion, by a lot.

We’ll be witness to this Wednesday.

When the FOMC adjourns, it is expected to announce no change in the Fed Funds Rate. Yet, based on the verbiage of the post-meeting statement, mortgage rates will rise or fall accordingly. If the Fed notes that the economy is sagging and that new stimulus is planned, mortgage rates are expected to drop. This is because new, Fed-led stimulus would be a boon for mortgage markets which would, in turn, drive mortgage rates down.

Conversely, if the Fed acknowledges growth in the U.S. economy and/or little need for new stimulus, mortgage rates are expected to rise.

Either way, expect rates to change — we just can’t know in what direction. The FOMC adjourns at 2:15 PM Wednesday.

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