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A brief recap of the Federal Open Market Committee's December 16, 2009 statement and what it means for mortgage rates, homeowners, and the economy.
A brief recap of the Federal Open Market Committee's November 4, 2009 statement and what it means for mortgage rates, homeowners, and the economy.
Recapping the Federal Open Market Committee's September 23, 2009 statement and what it means for mortgage rates, homeowners, and the economy.
The Federal Reserve does not set mortgage rates. Mortgage rates are based on the raw price of mortgage-backed securities plus applicable loan-level pricing adjustments. Or, with respect to jumbo mortgages, rates get set by individual banks. The Fed does, however, influence rates.
Dan Green reviews the Federal Open Market Committee's decision to leave the Fed Funds Rate in its target range, plus the impact on mortgage rates going forward.
The Fed Funds Rate is in a "target range" of 0.000-0.250 percent -- the lowest it's been history. It's a stimulative position for the economy and markets don't expect the rate to change. Based on trading in Fed Funds Futures, Wall Street predicts with 100% certainty that the Federal Open Market Committee will vote to leave the Fed Funds Rate unchanged. However, just because the Fed Funds Rate will be staying as-is doesn't mean that mortgage rates will, too.
So that brings us to today's Federal Open Market Committee meeting. Looking at the chart at top, markets are 99.3% certain that the Federal Reserve won't raise the Fed Funds Rate from its current range of "near-zero". Investors have come to this conclusion because the Fed has repeatedly said it will keep the Fed Funds Rate as low as possible for as long as possible. There's no real reason to raise it now.
Mortgage rates are notoriously volatile when the Federal Open Market Committee meets and today is such a day. Given the current environment of low mortgage rates -- whether you live in Hyde Park, Cincinnati or Hyde Park, Chicago -- there's definitely more chance of mortgage rates rising this afternoon than falling. There's only so much lower rates can go.
The Federal Reserve meets next week for a policy-setting meeting. It’s one of 8 scheduled Fed meetings this year in which the Federal Open Market Committee votes on whether to raise, lower, or leave unchanged the Fed Funds Rate. The Fed Funds Rate's macroeconomic implications, in part, led to the creation of the Fed Funds Futures market. Traded on the Chicago Board of Trade, Fed Funds Futures options contracts lets investors "bet" on what the Federal Reserve will do to the Fed Funds Rate at the next Fed meeting.
The Federal Open Market Committee adjourns from its two-day meeting this afternoon. The voting members are widely expected to lower the Fed Funds Rate by a half-percent to 0.500 percent, the lowest Fed Funds Rate in recorded history. Mortgage rates should rise in response. This is a counter-intuitive relationship for...
The Federal Open Market Committee adjourns from its 2-day meeting today after which the FOMC will issue its customary press release. The majority of Wall Street expects a Fed Funds Rate cut to 1.000 percent -- the lowest level since June 2004. Plus, it's worth noting that some are calling...
While Wall Street sells off and Congress implements the Bailout Bill, Wall Street players are changing their expectations for the Fed Funds Rate going forward. Thing is, there's a complete uncertainty about what the Fed is going to do. In fact, there's a complete uncertainty about everything and lack of...
The chart above doesn't go all the way back, but since 1990, the Fed Funds Rate has moved in quarter-percent increments only. This is a big deal because the Federal Reserve meets next week and there is a bevy of discussion among market players about whether the Fed should raise...
Never doubt the power of worms words. Mortgage rates had trended higher throughout May, but when Ben Bernanke used the word "inflation" 55 times in a speech June 4, that trend turned into a spike. Rates are much higher now and home buyers are feeling the pain. The chart above...
While former Fed Chairman Alan Greenspan goes to the press in defense of his reputation, the Wall Street Journal's Greg Ip gets practical, talking about the Federal Reserve's options as the current credit crunch deepens. Cut the Fed Funds Rate? Well, that benchmark rate is down 3 percent since September...
This graphic charts how think the Federal Open Market Committee will change the Fed Funds Rate at its two-day meeting starting April 29. Here's how to follow along: Each colored line represents an "outcome" for the Fed Funds Rate post-meeting The farther you go to the right, the closer you...
When the Federal Reserve lowers the Fed Funds Rate, mortgage rates tend to increase, and it's always for the same, few, related reasons: Rate cuts create long-term inflation pressures Rate cuts makes the U.S. dollar get weaker Rate cuts reflect short-term economic weakness But rate cuts are just one way...
The Federal Reserve is expected to lower the Fed Funds Rate Tuesday and that should cause mortgage rates to move higher. This is a counter-intuitive relationship for most people because when they hear that the Fed is "lowering rates", they instinctively think it means "mortgage rates". That's not the case...
Changes to the Fed Funds Rate figuratively literally takes months to work their way through the economy. That's one reason why the Federal Reserve is in a difficult position today. After cutting the Fed Funds Rate by 1.750% over the last four months, the FOMC is expected to cut the...
In a surprise move yesterday, the Federal Reserve cut the benchmark Fed Funds Rate by three-quarters of a percent. Mortgage rates fell only slightly as the surprise quickly wore off. To understand how the element of surprise works in mortgage markets, think about a Jack-in-the-Box. Everybody knows that the clown...
In June 2004, the Federal Reserve started a string of 17 consecutive rates hikes that lifted the Fed Funds Rate to 5.250%. This caused Prime Rate to rise, too, because Prime Rate is always three percentage points higher than the FFR. In mathematical terms, it looks like this: (Prime Rate)...
I am not in the game of making predictions about mortgage rates because I don't gamble with other people's money. This is the major reason why I recommend locking at today's mortgage rates rather than waiting for tomorrow's. Who knows what tomorrow will bring? After all, think back 25 years:...
With just a few days remaining until the Federal Reserve's next meeting, the guesses about what moves the Fed will make next are becoming more clear. Two weeks ago, there was a 70% chance that the Fed would stand pat at 4.750%. At that time, I was questioning whether a...
I'm not a huge reader of USA Today, but I happen to be at hotel on Long Island this morning and McPaper showed up at my door this morning. Surprising to me, there are a few interesting stories in the Money section. So, as we usually do, let's relate them...
It's easy to play Monday Morning Quarterback from my laptop, but now that we've seen most of September's data, it looks like the economy is not as weak as was advertised. Jobs data was revised higher Retail sales blew away expectations PPI was off the charts Jobless claims continue to...
The Fed's September meeting minutes were released yesterday and revealed a few interesting points: The Fed anticipated that the August Non-Farm Payroll report would be revised higher The Fed make a specific point to not say that recession pressures are outweighing inflationary ones Some of the Fed's non-voting members are...
The Fed may have lowered the Fed Funds Rate by 0.500%, but we won't know until mid-2008 if the move was good one or not. It's because the FOMC voting members walk a fine line between accelerating the economy, and grinding it to a halt. Predicting the future is actually...
I fielded a lot of phone calls yesterday from my clients about the Fed lowering the Fed Funds Rate and how it impacts them personally. I love days like those -- it shows me that my clients are paying attention to the financial world and how it impacts them. Education...
It's been slow going getting back in the saddle after last week's trip. A hearty "thank you" to my team at the office that made it all happen while Greg and I were away. Although markets appear calm right now, we're sitting in the eye of a storm. The Federal...
August 13, I was talking about my favorite Greek Yoghurt and how it related to mortgage rates. Yes, I spelled it "yoghurt". That's because I am paying homage to the beautiful city of Dublin. It was even sunny for a few minutes this morning. But I digress. August 13 is...
I interviewed with First Business anchor Anchor Beejal Patel this week. First Business produces news "shorts" that are syndicated nationwide. The story: "How would a Fed rate cut impact mortgage rates?" You all know my answer -- it's well-documented around these parts. I am a little embarrassed about having to...
I have fielded three separate questions from clients on the topic so that must mean it's time to address the issue in public. The Fed does not control mortgage rates. The Fed controls the Fed Funds Rate. The chart above from HSH Associates shows the path of the Fed Funds...
In its press release yesterday, did the Fed intentionally ignore the impact of credit markets in order to prevent a full-blown financial panic? According to the text, Bernanke & Co. are still watching inflation intently and its long-term economic view precludes it from acting upon last week's drastic credit crunch....
The graph above shows how the market's expectation of the Fed have changed since March. The colored lines represent the Fed Funds Rate as set at the FOMC's August meeting. The x-axis represents time The y-axis represents the percent likelihood of an event happening So, moving from left-to-right, we can...
And the hits just keep on coming. The Fed's May meeting minutes showed that it is concerned about inflation and that is pushing mortgage rates higher once again today. Despite "more favorable" economic readings, inflation remained "uncomfortably high" for the Fed and is following neither a downward trend, nor an...
According to the GDP data released this morning, economic growth is slowing. Normally, slowing growth would be fantastic news for mortgage rate shoppers, because slowing growth tends to lead to lower mortgage rates. Today, however, that's not the case because employment is strong, cost of living indicators are high, and...
Ben Bernanke told the congressionals Joint Economic Committee that inflation is "somewhat elevated", but it's no reason to expect a rate hike. In his prepared statement, Bernanke said a lot of things, broken down as follows: Economic growth has slowed because of a "substantial correction" in the housing market Sub-prime...
Man, is there a lot of chatter about the Fed this afternoon. What does it all mean? It's hard to sift through what's important in the commentary and what's just fluff because of the heavy doses of Economist Spin and Hyperbole. It reminds me of the old joke: A mathematician,...
Prior to the FOMC's adjournment this afternoon, here is how markets are predicting the future levels of the Fed Funds Rate: Fed Funds Rate After March Meeting: 5.000: 4% probability for the FFR 5.250: 96% probability for the FFR 5.550: 0% probability for the FFR Fed Funds Rate After May...
The Federal Open Market Committee just made a press release following their two-day meeting. The text can be read at the Federal Reserve Web site. I will provide some additional reading material from the WSJ shortly (because I love their "Parsing the Fed" series). For now, the key verbiage in...
