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A Simple Explanation Of The Federal Reserve Statement (March 15, 2011 Edition)

Tuesday, March 15th, 2011

Putting the FOMC statement in plain EnglishToday, for the sec­ond straight meet­ing, the Fed­eral Open Mar­ket Com­mit­tee voted unan­i­mously to leave the Fed Funds Rate unchanged within its tar­get range of 0.000–0.250 percent.

The vote was 10–0.

In its press release, the FOMC noted that since its Jan­u­ary 2011 meet­ing, the eco­nomic recov­ery “is on firm­ing foot­ing”, and that the labor mar­kets are “improv­ing grad­u­ally”. In addi­tion, house­hold spend­ing “con­tin­ues to expand”. Nonethe­less, the Fed said, the econ­omy remains con­strained by ris­ing com­mod­ity prices and the “depressed” hous­ing sector.

The FOMC state­ment also re-affirms the group’s plan to keep the Fed Funds Rate near zero per­cent “for an extended period”, and to keep its $600 bil­lion bond mar­ket sup­port pack­age — more com­monly called “QE2” — intact.

And, lastly, for the third straight time, the Fed­eral Open Mar­ket Committee’s post-meeting release state­ment included a para­graph detail­ing the Fed­eral Reserve’s dual man­date of man­ag­ing infla­tion lev­els, and fos­ter­ing max­i­mum employ­ment. Although it acknowl­edged infla­tion­ary pres­sures on the econ­omy, the Fed said infla­tion remains too low for the econ­omy cur­rently, and that unem­ploy­ment remains “elevated”. 

In time, the Fed expects both mea­sure­ments to improve.

Mort­gage mar­ket reac­tion to the FOMC has been neg­a­tive since the statement’s release. Mort­gage rates are unchanged, but poised to worsen.

The FOMC’s next sched­uled meet­ing is a 1-day event, March 15, 2011.

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Your Mortgage Rate Strategy For Today’s FOMC Meeting

Tuesday, March 15th, 2011

Fed Funds Rate Nov 2007 - March 2011The Fed­eral Open Mar­ket Com­mit­tee meets today in Wash­ing­ton D.C. The FOMC is a spe­cial group within the Fed­eral Reserve, led by Fed Chair­man Ben Bernanke, and con­sist­ing of 12 members.

The FOMC’s offi­cial sched­ule calls for 8 meet­ings annu­ally at which it reviews the nation’s eco­nomic and finan­cial con­di­tions, and chooses whether to change exist­ing mon­e­tary policy.

The group’s last rendez-vous was a 2-day affair, Jan­u­ary 25–26, 2011.

Today’s FOMC meet­ing rep­re­sents a bona fide risk to home buy­ers and rate shop­pers across the coun­try. This is because when the Fed meets, Wall Street gets ner­vous which, in turn, causes mort­gage rates to get volatile. And, as mort­gage rates go, so goes home affordability. 

Rate shop­pers learned this the hard way after the FOMC’s last meeting.

In Jan­u­ary, Wall Street deemed the Fed’s sta­tus quo mes­sage too soft on the loom­ing threat of infla­tion. As a result, con­form­ing mort­gage rates rose through 7 of the next 10 days, dri­ving pric­ing to its worst lev­els of the year.

This may hap­pen again begin­ning today.

At 2:15 PM ET, the FOMC will adjourn and make a press release to the mar­kets. The Fed is expected to keep the Fed Funds Rate near its tar­get range of 0.000 per­cent, and to keep its $600 bil­lion bond buy pro­gram in place. That doesn’t mean mort­gage rates will idle, however.

Depend­ing on the ver­biage of the Fed’s state­ment, Wall Street will make its new bets. A tough approach on infla­tion should push mort­gage rates down; a soft approach should pres­sure rates up. Either way, you may want to lock your mort­gage rate prior to 2:15 PM ET — just to be safe.

Once the Fed adjourns, you’re at the market’s mercy.

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Fed Minutes Show Lower Unemployment And Higher Growth For 2011 and 2012

Friday, February 18th, 2011

FOMC November 2010 MinutesThe Fed­eral Reserve released its Jan­u­ary 25–26, 2011 meet­ing min­utes Wednes­day after­noon. mort­gage rates have been in flux since.

Fed Min­utes are com­pre­hen­sive recaps of Fed­eral Open Mar­ket Com­mit­tee meet­ings; a detailed look at the debates and dis­cus­sions that shape our nation’s mon­e­tary pol­icy. As such, they’re released 8 times annu­ally; 3 weeks after the most recent FOMC meeting.

Fed Min­utes can be viewed as the unabridged ver­sion of the suc­cinct, more well-known “Fed State­ment” that’s released to mar­kets imme­di­ately post-adjournment.

Just how much more lengthy are Fed Minutes?

  • The Jan­u­ary 25–26, 2011 state­ment con­tains 395 words
  • The Jan­u­ary 25–26, 2011 meet­ing min­utes con­tains 6,916 words

If the Fed State­ment is an exec­u­tive sum­mary, the Fed Min­utes is a novel. And, the extra words matter.

When the Fed­eral Reserve pub­lishes its min­utes, it’s offer­ing clues about the group’s next policy-making steps.  As an exam­ple, in the Jan­u­ary min­utes, the Fed improved its out­look for eco­nomic growth; low­ered its pro­jec­tions for the Unem­ploy­ment Rate; and removed its con­cern for deflation.

In addi­tion, the Fed dis­cussed the poten­tial for food-and-energy-cost-induced infla­tion, but labeled it as a minor eco­nomic risk at this point in time.

Bond mar­kets are mixed on the text of the Fed Minutes.

Although the Fed indi­cates a will­ing­ness to allow infla­tion to occur, it appears ready to act in case infla­tion goes too high. One way that the Fed responds to ris­ing infla­tion is to raise the Fed Funds Rate and many econ­o­mists believe this will start hap­pen­ing by late-2011 or early-2012.

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