Fed Minutes Suggests “Floating” Mortgage Rates Are At Risk

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Shopping for a mortgage? The next few months could cause you some heartburn.

Mortgage Rates Unsteady, In Flux

The Federal Reserve recently released the minutes from it most recent Federal Open Market Committee meeting. The Fed Minutes are detailed meeting notes from FOMC meetings, similar to the follow-up notes from a condo association meeting, or a corporate shareholder meeting.

Just how detailed are the Fed Minutes?

The minutes from the last FOMC meeting contained 60 paragraphs and 7,027 words of text.  Now, compare that with the Fed's initial, post-meeting press release of 5 paragraphs and 382 words and it's clear that the Fed Minutes are deep.

There's a lot that the Fed told us in its most recent minutes. For example, the Federal Reserve sees the U.S. economy in slow, steady expansion, but remains wary of ongoing threats from the Eurozone.

For mortgage rate shoppers, it's a volatile combo that puts mortgage rates in flux. Economic expansion tends to push mortgage rates up. Global economic strife tend to push mortgage rates down.

It's a tug-of-war that won't end soon. Today's mortgage rates may be the lowest we'll see.

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Fed : The Housing Market "Could Be Improving"

The Fed had more to say, too.

According to the Fed Minutes, the U.S. economy has shown improvement since November, but “strains” in global financial markets pose “significant risks” to the downside. This tell us that Ben Bernanke & Co believe that the Federal Reserve's economy-stimulating programs are working, but that Eurozone issues could be a threat.

The PIIGS -- Portugal, Ireland, Italy, Greece, and Spain -- have faced notable debt repayment problems, casting a cloud over the entire European economy. Bailouts and restructuring have changed the area's sociopolitical climate and, while temporary solutions have minimized issues, a permanent fix remains elusive.  

The U.S. economy could be impacted by fallout.

Other meeting consensus from the Fed included :

• On growth : The economy is expanding, despite slowing in “global economic growth”
• On housing : Data suggests the “depressed” market “could be improving”
• On inflation : Prices are stable, and remain within tolerance levels

The next few months will prove interesting. We'll find out if recent economic trends are just temporary blips on a downward path, or the first steps in an overall recovery. If it's the latter, all things equal, these sub-4 percent mortgages we're seeing will go the way of the dodo bird.

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The Fed's Market Policy Communication Policy

The Fed’s analysis was of little surprise to Wall Street, and going forward, Fed Chairman Ben Bernanke wants to keep it that way. The Fed Minutes contained a specific passage regarding market communication, and how the Fed will be more pro-active about it in the future.

In a section called “Market Policy Communications”, the Federal Reserve showed its plans to release economic forecast 4 times annually, and to provide more clarity about the future of the Fed Funds Rate.

This is a dramatic shift in formal Federal Reserve transparency. Over the past 18 months, the Fed has been trying to be more open with its projections, but has never made a formal policy on the same. This may or may not reduce mortgage market volatility going forward. We won't know until we seen a few of the projections, and how they match with Wall Street expectations.

The Federal Reserve will begin forecasting with its economic projections beginning after its next policy meeting, January 24-25, 2012.

Get A Mortgage Rate While Mortgage Rates Are Low

Mortgage rates are volatile and change without notice. Sometimes, three or four times per day. And remember, if your rate is not locked, it's floating, and that means that you're not locked in.

Protect yourself from mortgage rate changes. Get your mortgage rate priced and locked today.

Click here to get a rate quote.