Mortgage rates are improving after the Federal Reserve's January 2013 FOMC meeting.
The nation's central banker described the U.S. economy as "paused" -- the result of weather-related disruptions and other "transitory factors" -- as it voted to leave the Fed Funds Rate unchanged.
That, along with the Fed's re-commitment to its plan to purchase $40 billion in mortgage-backed securities monthly, has helped the mortgage bond market make gains, which has stopped the recent rise in U.S. mortgage rates.
Wednesday, the Federal Open Market Committee (FOMC) voted to leave its benchmark Fed Funds Rate unchanged at its current range near 0.000%.
The 9-1 vote marks the eleventh straight meeting at which the FOMC adjourned with a near-unanimous vote. The long dissenter was Federal Reserve Bank of Kansas City President Esther George.
In voting to keep the Fed Funds Rate near zero percent, the Federal Reserve has now done so through 33 straight meetings -- a streak which dates to December 2008.
A low Fed Funds Rate is designed to stimulate the U.S. economy. When the Fed Funds Rate is low, borrowing costs are reduced for businesses and consumers, which can stimulate spending.
In the Fed's post-FOMC press release, it shared the following economic insights :
In addition, the Fed notes that employment has continued to advance, although the unemployment rate "remains elevated"; and that inflation rates are running below the group's two percent target rate.
Promoting maximum employment and price stability is the Federal Reserve's dual mandate. Employment is improving and inflation is expected to remain low in the medium-term. These developments are good for the housing market and for refinancing homeowners. Inflation leads to higher mortgage rates.
The Fed's statement also included a timeline for when monetary policy may change.
As one example, the statement reads that, so long as the national jobless rate remains above 6.5%, the Fed Funds Rate is likely to remain near zero percent.
Coincidentally, the last time the national Unemployment Rate was 6.5% was September 2008. This is the month during which Fannie Mae and Freddie Mac were taken into conservatorship; and, Merrill Lynch was sold to Bank of America; and, Lehman Brothers collapsed.
The current national Unemployment Rate is 7.8%.
Additionally, the Fed re-affirmed its third round of quantitative easing (QE3).
QE3 first launched in September 2012. Via the program, the Federal Reserve buys $40 billion of mortgage-backed bonds monthly, creating excess demand for the product. This, in turn, causes bond prices to rise and bond yields to fall. When bond yields fall, mortgage rates drop.
The QE3 program will continue until the labor market improves "substantially", or until inflationary pressures build.
QE3 is among the catalysts for mortgage rates dropping to 3.31%, on average, last year and the Fed's commitment to the program is among the major reasons why mortgage rates have stayed in the 3s so far this year -- the Fed's $40 billion monthly is offsetting the net sellers in the market.
Mortgage rates are slightly better after today's FOMC statement. By Friday, however, rates may move higher once again. This is because the Bureau of Labor Statistics is releasing its Non-Farm Payrolls report, which includes the national unemployment rate.
If the jobless rate is shown to be lower this month, mortgage rates are expected to rise. This is because a falling unemployment rate is now linked to future Federal Reserve policy.
Protect yourself against changing mortgage rates. Get a personalized mortgage rate quote today. It's free.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
The Mortgage Reports has provided me with helpful advice. I enjoy all the various types of mortgage information. Thank you!
Sarah M. Office Manager
The Mortgage Reports has been an invaluable resource to me -- it helped me to pick the sweet spot to refinance. Thanks!
Marie M. Real Estate Agent
I have been a Realtor for more than 30 years and enjoy The Mortgage Reports. It's terrific to learn something new almost every day.
2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)