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A Simple Explanation Of The Federal Reserve Statement (January 26, 2011 Edition)

Wednesday, January 26th, 2011

Putting the FOMC statement in plain EnglishToday, the Fed­eral Open Mar­ket Com­mit­tee voted 10-to-0 to leave the Fed Funds Rate unchanged within its tar­get range of 0.000–0.250 percent.

In its press release, the FOMC noted that since December’s meet­ing, eco­nomic growth is ongo­ing, but at a pace deemed “insuf­fi­cient” to make a mate­r­ial impact on the jobs mar­ket. In addi­tion, the Fed said house­hold spend­ing “picked up” late last year, although it con­tin­ues to be held back by job­less­ness, tight credit and lower hous­ing wealth.

This is sim­i­lar to the lan­guage used in the FOMC’s Novem­ber and Decem­ber 2010 statements.

Also like its last two state­ments, the Fed used this month’s press release to re-affirm its plan to keep the Fed Funds Rate near zero per­cent “for an extended period”, and to keep its $600 bil­lion bond mar­ket sup­port pack­age in place.

And finally, of par­tic­u­lar inter­est to home buy­ers and mort­gage rate shop­pers, for the sec­ond straight month, the Fed­eral Open Mar­ket Committee’s state­ment con­tained an entire para­graph detail­ing the Fed­eral Reserve’s dual man­date of man­ag­ing infla­tion lev­els, while fos­ter­ing max­i­mum employment. 

The Fed acknowl­edges progress toward this goal, but calls that progress “dis­ap­point­ingly slow”. Infla­tion is too low right now, and job­less­ness too high.

Over time, the Fed expects both mea­sure­ments to improve.

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

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

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The Fed Meets Today. What It Means To Mortgage Rates.

Tuesday, January 25th, 2011

Fed Funds Rate vs Conforming Fixed Rate (2000-2010)The Fed­eral Open Mar­ket Com­mit­tee begins a 2-day meet­ing today in Wash­ing­ton D.C. It’s the group’s first meet­ing of 2011 — one of 8 sched­uled for the year.

The Fed meets every 45 days, on aver­age. Its last meet­ing was Decem­ber 14, 2010.

Rate shop­pers and home buy­ers should make a note. Mort­gage rates and home afford­abil­ity could change dra­mat­i­cally begin­ning tomor­row afternoon.

Because Wall Street watches FOMC meet­ings closely, so should you. The meet­ings pro­vide insight on the future of U.S. mon­e­tary pol­icy, as told by the nation’s cen­tral banker. Investors make trades based on the FOMC’s com­men­tary which is one rea­son why mort­gage rates tend to undu­late through the hours lead­ing up to the FOMC’s adjourn­ment, and the days imme­di­ately after.

Wall Street is shift­ing old bets, and plac­ing new ones.

A ter­rific exam­ple of this is what hap­pened after the Fed’s Novem­ber 3, 2010 meeting.

In its post-meeting press release, the Fed­eral Reserve announced a new, $600 bil­lion, market-bolstering plan dubbed “QE2”. Wall Street had widely expected the Fed to cre­ate the pro­gram, but had under­es­ti­mated its size.

Start­ing a $600 bil­lion pro­gram sparked fears of a Fed-led infla­tion run, which, in turn, caused mort­gage mar­kets to dete­ri­o­rate in a hurry. In the 3 days fol­low­ing the program’s announce­ment, mort­gage rates spiked to multi-month highs and have not since recovered.

QE2 marked the begin­ning of the end of the Refi Boom and low rates. Today, con­form­ing rates are rel­a­tively low as com­pared to higher, but are much higher than they were prior to the FOMC’s Novem­ber 2010 meeting.

Then, December’s FOMC meet­ing did lit­tle to change the direc­tion of rates. We shouldn’t expect that January’s will, either. After the FOMC’s 2:15 PM ET adjourn­ment Wednes­day, mort­gage rates should resume climb­ing, as they have done for the past 10 weeks.

If you’re shop­ping for a mort­gage rate, there­fore, the pru­dent move is to lock prior to Wednesday’s FOMC adjourn­ment because, after once the Fed’s out­look is released, it will be too late. 

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A Simple Explanation Of The Federal Reserve Statement (December 14, 2010 Edition)

Tuesday, December 14th, 2010

Putting the FOMC statement in plain EnglishToday, the Fed­eral Open Mar­ket Com­mit­tee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its tar­get range of 0.000–0.250 percent.

In its press release, the FOMC noted that since November’s meet­ing, the “eco­nomic recov­ery is con­tin­u­ing”, but at a pace deemed too slow to make a mate­r­ial impact on unem­ploy­ment rates. It also said that house­hold spend­ing in increas­ing, but remains con­strained by job­less­ness, tight credit and lower hous­ing wealth.

In addi­tion, the Fed used its press release to re-affirm its plan to keep the Fed Funds Rate near zero per­cent “for an extended period” while also opt­ing to keep its $600 bil­lion bond mar­ket sup­port pack­age in place.

And lastly, of par­tic­u­lar inter­est to home buy­ers and mort­gage rate shop­pers, the FOMC state­ment devoted an entire para­graph to the Fed­eral Reserve’s dual man­date of keep­ing infla­tion and employ­ment at accept­able levels.

The Fed acknowl­edges mak­ing progress toward this goal, but calls it “dis­ap­point­ingly slow”. Cur­rently, infla­tion is too low for what the Fed deems accept­able, and unem­ploy­ment is too high. 

Over time, the Fed expects both mea­sure­ments to improve.

Mort­gage mar­ket reac­tion to the FOMC state­ment has been neg­a­tive thus far. Mort­gage rates are unchanged post-FOMC, but appear poised to worsen.

The FOMC’s next sched­uled meet­ing is a 2-day affair, Jan­u­ary 25–26, 2011. It’s the first sched­uled meet­ing of 2011.

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