Posts Tagged ‘FOMC’

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What’s Ahead For Mortgage Rates This Week : January 30, 2012

Monday, January 30th, 2012

Net New Jobs, 2010-2011Mort­gage mar­kets improved last week as news from the Fed­eral Reserve, the U.S. econ­omy, and Europe com­bined to spur new demand for mortgage-backed bonds.

Con­form­ing mort­gage rates ral­lied from Wednes­day through Friday’s close, end­ing the week near all-time lows set ear­lier this year.

Last week’s rally was sparked by the Fed­eral Open Mar­ket Committee.

After its first meet­ing of the year, Chair­man Ben Bernanke & Co. changed its pro­jec­tion for “excep­tion­ally low rates” to at least late-2014. Pre­vi­ously, the Fed had said its bench­mark Fed Funds Rate would remain low until 2013.

This, in con­junc­tion with the Fed’s mes­sage that fur­ther eco­nomic stim­u­lus may be com­ing, led Wall Street investors to increase their bets on mort­gage bonds, push­ing up prices and push­ing down yields.

Lower yields means lower rates.

Mort­gage rates were also helped lower by mixed data on the U.S. econ­omy includ­ing weaker-than-expected hous­ing reports, and another set­back in the Greece sov­er­eign debt negotiations.

Each time that Euro­zone lead­ers have failed to reach an expected accord with Greece since 2010, mort­gage rates have dropped. Last week was no different.

This week, with a large amount of U.S. eco­nomic data due for release and a high-profile sum­mit among Euro­pean Union lead­ers, mort­gage rates are poised to move. Unfor­tu­nately, we can’t know in which direction.

Some of the news that will move mar­kets include :

  • Mon­day : Per­sonal Con­sump­tion Expenditures
  • Tues­day : Con­sumer Con­fi­dence; Case-Shiller Index
  • Wednes­day : Con­struc­tion Spending
  • Thurs­day : Weekly Job­less Claims
  • Fri­day : Non-Farm Payrolls;Factory Orders

Of all of the eco­nomic releases, Friday’s Non-Farm Pay­rolls has the most poten­tial to move mar­kets. More com­monly called “the jobs report”, Non-Farm Pay­rolls details the monthly change in national employ­ment and the national Unem­ploy­ment Rate. 

Jobs are believed to be the key to U.S. eco­nomic recov­ery so strength in jobs should result in higher mort­gage rates through­out and the country.

Mort­gage rates remain very low. If you’re ner­vous about mort­gage rates ris­ing this week or next, it’s as good of a time as any to lock your rate with a lender, and start mov­ing toward closing.

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A Simple Explanation Of The Federal Reserve Statement (January 25, 2012)

Wednesday, January 25th, 2012

Putting the FOMC statement in plain EnglishWednes­day, the Fed­eral Reserve’s Fed­eral Open Mar­ket Com­mit­tee voted to leave the Fed Funds Rate unchanged within its cur­rent tar­get range of 0.000–0.250 percent.

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

For the third con­sec­u­tive month, the Fed Funds Rate vote was nearly unan­i­mous. Just one FOMC mem­ber dis­sented in the 9–1 vote, object­ing only to the lan­guage used in the Fed’s offi­cial statement.

In its press release, the Fed­eral Reserve noted that the the U.S. econ­omy has “expand­ing mod­er­ately” since its last meet­ing in Decem­ber 2011, adding that the growth is occur­ring despite “slow­ing in global growth” — a ref­er­ence to ongo­ing eco­nomic uncer­tainty within the Eurozone.

The Fed­eral Reserve expects mod­er­ate eco­nomic expan­sion through the next few quar­ters but is wary of “strains” from global finan­cial mar­kets, and these three threats to the U.S. economy :  

  1. The hous­ing sec­tor remains “depressed”
  2. The unem­ploy­ment rate remains “elevated”
  3. Fixed busi­ness invest­ment has “slowed”

On the pos­i­tive side, the FOMC said that house­hold spend­ing is ris­ing and infla­tion remains in-check. The group also believes that employ­ment will grad­u­ally improve nation­wide going forward.

The Fed­eral Reserve nei­ther intro­duced new eco­nomic stim­u­lus, nor dis­con­tin­ued exist­ing mar­ket programs.

Imme­di­ately fol­low­ing the FOMC’s state­ment, mort­gage mar­kets ral­lied, pres­sur­ing mort­gage rates to fall. 

Mort­gage rates remain near all-time lows and, for home­own­ers will­ing to pay points plus clos­ing costs, con­ven­tional, 30-year fixed rate mort­gages can be locked at below 4 per­cent. If you’re in the process of buy­ing or refi­nanc­ing a home , it’s a good time to lock a mort­gage rate with your lender.

The FOMC’s next sched­uled meet­ing is a one-day event slated for March 13, 2012.

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The Federal Reserve Meets Today : Mortgage Rates Expected To Move

Wednesday, January 25th, 2012

Interest rate difference between 30-year fixed and Fed Funds Rate 2000-2012

The Fed­eral Open Mar­ket Com­mit­tee adjourns from a sched­uled 2-day meet­ing today, its first of 8 sched­uled meet­ings this year.

The FOMC is a des­ig­nated, rotat­ing, 12-person com­mit­tee within the Fed­eral Reserve, led by Fed­eral Reserve Chair­man Ben Bernanke. Mem­bers of the FOMC sub-committee are the vot­ing mem­bers of the Fed­eral Reserve; the ones that ulti­mately deter­mine U.S. mon­e­tary policy.

The most well-known Fed­eral Reserve mon­e­tary pol­icy tool is the cen­tral bank’s Fed Funds Rate. The Fed Funds Rate is the pre­scribed inter­est rate at which banks bor­row money from each other for a period of one night. 

The Fed Funds Rate can only be changed by FOMC vote.

For home buy­ers and would-be refi­nanc­ing house­holds , it’s impor­tant to rec­og­nize that the Fed Funds Rate is an inter­est rate sep­a­rate and dis­tinct from “mort­gage rates”. Mort­gage rates are not voted upon by the Fed­eral Reserve. Rather, mort­gage rates are based on the price of mortgage-backed bonds, a secu­rity bought and sold among investors.

His­tor­i­cally, there is lit­tle cor­re­la­tion between the Fed Funds Rates and 30-year fixed rate mort­gage rates. Going back 20 years, the bench­mark rates have been sep­a­rated by as much as 5.29% and have been as near as 0.52%. 

The spread has even gone neg­a­tive, most recently in 1979 and 1981 — a period marked by high inflation.

Today, the sep­a­ra­tion between the Fed Funds Rate and the aver­age, 30-year fixed rate mort­gage rate is roughly 3.60%. Beginning at 12:30 PM ET, how­ever, that spread is expected to change. The FOMC will make its state­ment to the press at that time, and will release its quar­terly fore­cast to the markets.

As Wall Street reacts to the Fed’s press release and pro­jec­tions, mort­gage rates will move.

Investors expect the Fed to vote the Fed Funds Rate unchanged from its cur­rent range near 0.000 per­cent, but are unsure of how the Fed will char­ac­ter­ize the U.S. econ­omy. If the Fed speaks opti­misti­cally on the econ­omy, stock mar­kets should rise and mort­gage bonds should fall, dri­ving mort­gage rates higher.

Con­versely, if the Fed shows con­cern for future eco­nomic growth, mort­gage rates should drop. Either way, today fig­ures to be volatile one for mort­gage markets. 

When mort­gage mar­kets get volatile, the safe play as a rate shop­per is to lock your mort­gage rate imme­di­ately. There too much risk in floating.

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