Notes From The Fed Suggests Higher Mortgage Rates In 2012

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The Fed Funds Rate may hold near zero for some time, but that's not to say that mortgage rates will. The Federal Reserve projects an improving U.S. economy and long-term global growth -- two typical catalysts for mortgage rate increase.

Mortgage rates may never be as low as they are right now.

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The Fed Make U.S. Monetary Policy

The Federal Reserve recently released the minutes from its January 2012 meeting. 15 pages in length and loaded with charts, the Fed Minutes detail the intra-Fed debates that shape our nation's monetary policy.

Fed Minutes receive less attention than the FOMC's post-meeting press release but have every bit as much import -- especially to today's mortgage rate shoppers. This is because mortgage rates are based, in part, on future economic expectations and the Federal Reserve provides excellent insight.

It helps that the Fed gets final say on monetary policy, too.

When the Fed thinks the economy is expanding too rapidly, it takes steps to slow growth. Conversely, when the Fed thinks the economy needs a macro-economic boost, it takes steps to stimulate. An astute rate shopper can use the text of the Fed Minutes to make better "float or lock" decisions.

"Lock" is the signal that's coming from the Fed.

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Some Fed Members Concerned For Inflation

The January Fed Minutes revealed Fed members is disagreement on future monetary policy.

Some Fed members favored new, immediate market stimulus in the form of quantitative easing. QE2 has been accepted as a successful Fed intervention so talk of QE3 has emerged.

The Fed has hinted recently that ongoing weak employment data would trigger a QE3-like program. However, employment seems to be turning a corner (along with the rest of the economy). 243,000 net new jobs were added in January and small business plans to make more hires through 2012.

This is partly why other Fed members argued to terminate stimulus already in place.

The Fed's discussed were focused on inflation. The cumulative effect of the Fed's economic stimulus since 2007 and its near-zero Fed Funds Rate policy have the economy trudging forward like a truck in mud, tires spinning quickly. At some point, those tires will grab land and jolt the economic truck forward.

When that happens, the potential for runaway inflation is huge.

Ultimately, the Fed voted to neither add new stimulus nor remove that which already exists.

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Mortgage Rates Move Higher With Inflation

The Fed Minutes painted an even picture of the U.S. economy. Growth is coming, but slowly. Threats exist, but they're moderating. A recovery is underway, but not as quickly as hoped.

In short, the U.S. economy is moving forward one step at a time; re-building its foundation for long-term strength. This is good for homeowners who want higher home values, and for active employees who want higher wages. However, a higher Cost of Living is coming and, when it hits, mortgage rates will rise.

If you're shopping for a mortgage, consider that the best rates of the year may be the ones you get right now. By summer, the recovery may too far along for rates to be low.

Click here to get a mortgage rate.