Mortgage Rates : Reacting To The Federal Reserve’s December 2011 Statement

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Wall Street wanted QE3. It failed to arrive. So, mortgage rates are dropping.

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Fed Funds Rate Held Near 0.000%

Tuesday -- for the 16th consecutive time -- the Federal Open Market Committee met and voted to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.

The vote was nearly unanimous with just one dissent; a vote in favor additional policy stimulus beyond what the Federal Reserve currently provides.

In its press release, the Federal Reserve said that the the U.S. economy is improving. It noted that since its November 2011 meeting, the economy has been "expanding moderately" despite some "apparent slowing in global growth" -- a clear nod to ongoing issues in Greece, Spain, Italy and the rest of the Eurozone.

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No Change In Fed Policy; No New Stimulus

The Fed's economic analysis appears mixed. It acknowledged moderate growth expectations over the next year, but also named several key threats, including :  

1. There has been a slowdown in business investment
2. The housing market remains "depressed"
3. There are strains in global financial markets

As such, the Bernanke-led Fed added no new policies at its December meeting, and made no changes to existing ones.

It did re-iterate its plan to leave the Fed Funds Rate within its current range of 0.000-0.250 percent "at least until mid-2013" and also re-affirmed "Operation Twist". There was no mention of a "QE3" program, nor other market stimulus. The Fed left everything as-is until its next meeting, a 2-day affair for January 24-25, 2012.

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Play The Fed's Decision For Low Mortgage Rates

Wall Street expected the Fed to "do more" today. Because the Fed stood pat, though, a window to lock low mortgage rates opened up. It did not exist yesterday. 

Market conditions look great -- there's steady growth, low inflation, and no clear resolution within the Eurozone. The 3 forces have combined to push mortgage rates down to levels we never imagined were possible even just 6 months ago, let alone 6 years ago.

If you're thinking of buying or refinancing a home -- FHA, conforming, jumbo USDA, VA or otherwise -- start shopping rates (if you haven't already).

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