Tag Archives: FOMC

A Simple Explanation Of The Federal Reserve Statement (November 2, 2011 Edition)

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Putting the FOMC statement in plain EnglishWednesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was nearly unanimous, with just one dissenting voter. There were 3 dissenters at each of the FOMC’s last two meetings.

In its press release, the Federal Reserve presented an improved outlook for the U.S. economy, noting that since its last meeting in September, there’s new evidence that the economy “strengthened somewhat” in the third quarter.

One example cited is that consumer and business spending continues to rise while inflationary pressures on the economy remain modest. This indicates controlled growth — a plus in a recovering economy.   

The economy remains slowed by a number of factors, though, as noted by the Fed :

  1. “Continuing weakness” in the labor market
  2. Softness in commercial real estate
  3. A “depressed” housing market

In response to mixed economic conditions, the FOMC opted to “do nothing” today; it introduced no new monetary policy, and revised none of its existing market stimulus. The Fed re-iterated its plan to leave the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″ and affirmed “Operation Twist” — the program in which the Fed sells Treasury securities with a maturity of 3 years or less, and uses the proceeds to buy mortgage bonds with maturity between 6 and 30 years.

Mortgage market reaction to the FOMC statement has been negative this afternoon. Mortgage rates throughout Pennsylvania are rising because analysts expected the Fed to launch new, bigger stimulus plans. It didn’t. Rates may drift higher for the new few days, too.

Therefore, it today’s mortgage rates fit your household budget, consider locking in a mortgage rate. Mortgage rates are very low right now, relative to history. It may not last.

The FOMC’s next meeting — its last scheduled meeting of the year — is December 13, 2011.

Make Your Mortgage Rate Strategy : The Federal Reserve Starts A 2-Day Meeting

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Comparing the Fed Funds Rate to Mortgage RatesThe Federal Open Market Committee begins a scheduled, 2-day meeting today, the seventh of its 8 scheduled meetings this year, and the eighth Fed meeting overall.

The FOMC is a 12-person sub-committee within the Federal Reserve. It’s the group responsible for setting the nation’s monetary policy and is led by Federal Reserve Chairman Ben Bernanke.

The FOMC’s most well-known role is as the steward of the Fed Funds Rate. This is the overnight rate at which U.S. banks borrow money from each other. The Fed Funds Rate is a unique, “banking” interest rate, and should not be confused with consumer interest rates, a category which includes “mortgage rates”.

Mortgage rates are not set by the Federal Reserve. 

Rather, mortgage rates are based on the price of mortgage-backed bonds. If mortgage rates correlated to the FOMC’s Fed Funds Rate, the chart at right would be linear.

That said, the FOMC does exert influence on mortgage markets.

After its FOMC meetings, the Federal Reserve issues a press release to the public. In it, the central banker summarizes economic conditions nationwide, highlighting threats to the economy and areas of strength.

When the Federal Reserve’s statement is generally “positive”, mortgage rates tend to rise. This is because a strengthening economy invites investors to assume more risk, spurring equity markets at the expense of all bonds types, including the mortgage-backed kind.

When bond markets lose, mortgage rates rise.

Conversely, when the Fed is generally negative, bond markets gain, pushing mortgage rates lower throughout Pennsylvania.

The Fed can also influence mortgage rates via new policy.

At its last meeting, the FOMC launched a new, $400-billion round of mortgage-market stimulus known as Operation Twist. The added mortgage-bond support led mortgage rates lower post-FOMC meeting. 

The Fed may expand Operation Twist as soon as Wednesday afternoon. It may also take no such steps at all. Unfortunately, there are few clues about what the Federal Reserve may do next, if anything at all. As a result, mortgage rates will be a moving target for the next 36 hours. First, they’ll be volatile before of the Fed’s statement. Then, they’ll be volatile after the Fed’s statement.

Even if the Fed does nothing, mortgage rates will change so your safest play is to lock a mortgage rate ahead of Wednesday’s 2:15 PM ET adjournment.

There too much risk in floating.

What’s Ahead For Mortgage Rates This Week : October 31, 2011

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Federal Reserve meeting this weekMortgage markets moved across a wide range last week before, ultimately, finishing unchanged. The bailout of Greece both dominated headlines and dictated market direction.

It was a wild ride for rate shoppers.

Early in the week, mortgage rates spiked. Eurozone leaders expressed optimism that a deal for Greece’s solvency would be made, rhetoric to which Wall Street responded selling mortgage bonds.

When markets closed Wednesday, conforming mortgage rates in Pennsylvania were at their highest levels since September.

However, when markets opened Thursday, rates began to reverse lower. Investors deemed the details of the Greece fuzzy, and, once again, sought safety in the U.S. mortgage bond market.

As such, rates fell through Friday afternoon, closing the week precisely where they started.

This week’s market action figures to be similarly busy. In addition to Friday’s release of the October Non-Farm Payrolls data, the Federal Open Market Committee starts a 2-day meeting Tuesday.

It’s the FOMC’s 7th scheduled meeting of the year.

The FOMC is the Federal Reserve’s monetary policy-setting group. It does not set mortgage rates for citizens of Phoenixville , but it can exert an influence. For example, if the FOMC votes to increase the size of its Operation Twist, mortgage rates may respond favorably, causing rates to fall. 

Conversely, if the FOMC scales back the size of its program because of inflationary concerns or otherwise, mortgage rates should rise. 

The Federal Open Market Committee meeting ends at 2:15 PM ET Wednesday and mortgage rates are typically volatile in the hours surrounding the group’s adjournment. If you’re floating a mortgage rate or deciding whether to lock, keep this date and time in mind.

Fed Minutes : A Fed Divided Reaches Compromise

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Fed Minutes

Wednesday, the Federal Reserve released the minutes from its 2-day meeting September 20-21, 2011.

The release shows a divided Fed in disagreement about the current U.S. monetary policy. The group reached compromise for new economic stimulus, however, and maintained its commitment to accommodative interest rates.

Wall Street reacted tepidly to the minutes. Mortgage rates in Collegeville worsened slightly post-release.

The Fed Minutes gets less press than the FOMC’s post-meeting press release, but it’s every bit as important. Because it details the conversations that take place among voting and non-voting Fed members at FOMC meetings, the Fed Minutes is an inside-look at the debates and discussion that lead to new monetary policy.

As examples, here are some of the topics covered at the September FOMC meeting :

  • On growth : Economic growth was slow, but “did not suggest a contraction”
  • On housing : The market continues to be “depressed by weak demand”
  • On rates : The Fed Funds Rate will remain low until mid-2013

Then, with Fed members divided on whether the central bank should add new stimulus, it reached a compromise instead, launching the $400 billion “Operation Twist” program. Operation Twist is meant to lower longer-term interest rates, including mortgage rates.

Since Operation Twist began, mortgage rates are higher by nearly 0.375%.

Also noteworthy within the Fed Minutes was concern for an economic slowdown and how the Federal Reserve may react. According to the record, a slowdown may prompt the Fed to introduce its third round of qualitative easing, or QE3. An out-sized stimulus plan would likely lead rates higher.

Nothing will happen until the Fed’s next meeting, however. Chairman Ben Bernanke & Co meet next November 1-2 for a 2-day meeting..