Archive for the ‘FOMC’ Category

A Simple Explanation Of The Federal Reserve Statement (November 3, 2010 Edition)

David Kosmecki | November 3, 2010 in FOMC | Comments (0)

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Putting the FOMC statement in plain EnglishToday, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that, since September’s meeting, the pace of economic and job growth “continues to be slow”.  Housing starts are “depressed”, income growth is “modest” and commercial real estate investment is “weak”.

With respect to its prior economic stimuli, the Fed deemed the recovery “disappointingly slow”, while, at the same time, noting that growth will come.

The Fed also noted that inflation is running lower that what’s optimal, hinting at the potential for deflation.

Lastly, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent “for an extended period”, and also announced a new, $600 billion support package for the bond market. In most instances, a move like this would drive mortgage rates lower, but the Fed’s stimulus had been widely telegraphed, and $600 billion isn’t too far from the initial package estimates.

Mortgage market reaction has been muted thus far. Mortgage rates in Plymouth are unchanged post-FOMC, but looked poised to worsen.

The FOMC’s next scheduled meeting is December 14, 2010. It’s the last scheduled meeting of the year.


Mortgage Rate Lock Alert : Expect Rate Changes Wednesday Afternoon

David Kosmecki | in FOMC | Comments (0)

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Comparing 30-year fixed mortgage rate to Fed Funds Rate since 2000The Federal Reserve ends a scheduled, 2-day meeting today. It’s the seventh of 8 scheduled Fed meetings in 2010, and the eighth overall this year.

The Fed held an unscheduled meeting May 9, 2010.

When today’s meeting adjourns, Fed Chairman Ben Bernanke & Co. will publish a formal statement within which the Fed is expected to announce “no change” to the Fed Funds Rate. But that doesn’t mean that mortgage rates won’t change.

To the contrary, expect mortgage rates to move by a lot this afternoon. Here’s why.

The Fed’s mission is to preserve stability within banking and the economy and, to achieve that goal, the Fed was bequeathed a number of powers by the U.S. government.

The most well-known of those powers is to right to set the Fed Funds Rate, the rate at which banks lend money to each other overnight. 

Since December 2008, the benchmark Fed Funds Rate has been held in a range of 0.000-0.250 percent, the lowest possible range without going negative.

Now, when the Fed Funds Rate is low, it’s meant to loosen credit; to push the economy forward. And, by all accounts, the near-zero Fed Funds Rate is working. The recession ended and the economy is recovering.

However, the Fed has other stimulus-providing tools at its disposal and Wall Street expects the group to use them.  This is where mortgage rates come into play. 

Investors think the Fed will announce a new stimulus in its press release this afternoon and, dependent on the size of package, mortgage rates in Minnesota will either rise, or fall.

  • If the package is worth more than $500 billion, rates are expected to fall
  • If the package is worth less than $250 billion, rates are expected to rise

If the stimulus is somewhere in between, rates should idle.

Predicting mortgage rates is an inexact science, and guessing the Fed even moreso. Therefore, if you’re shopping for a mortgage rate right now, the prudent move is to lock it up prior to today’s 2:15 PM ET adjournment because, after to 2:15 PM ET, we can count on the Fed Funds Rate staying flat, but the same can’t be said for mortgage rates. 

Call your loan officer this morning.


A Simple Explanation Of The Federal Reserve Statement (September 21, 2010 Edition)

David Kosmecki | September 21, 2010 in FOMC | Comments (0)

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Putting the FOMC statement in plain EnglishToday, in its 7th meeting of the year, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 

The Fed Funds Rate remains at a historical low, within a Fed’s target range of 0.000-0.250 percent.

In its press release, the FOMC said that the pace of economic recovery “has slowed” in recent months. Household spending is increasing but remains restrained by high levels of unemployment, falling home values, and restrictive credit.

For the second straight month, the Federal Reserve showed less economic optimism as compared to the prior year’s worth of FOMC statements dating back to June 2009. However, the Fed still expects growth to be “modest in the near-term”.

This outlook is consistent with recent research showing that the recession is over, and that growth has resumed — albeit at a slower pace than what was originally expected.

The Fed also highlighted strengths in the economy:

  1. Growth is ongoing on a national level
  2. Inflation levels remain exceedingly low
  3. Business spending is rising

As expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”.

There were no surprises in the Fed’s statement so, as a result, the mortgage market’s reaction to the release has been neutral. Mortgage rates in Wisconsin are thus far unchanged this afternoon.

The FOMC’s next meeting is a 2-day affair scheduled for November 2-3, 2010.


The Federal Reserve Meets Today. Should You Lock Your Rate Before It Adjourns?

David Kosmecki | in FOMC | Comments (0)

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Comparing 30-year fixed mortgage rate to Fed Funds Rate since 1990The Federal Open Market Committee adjourns from its 6th scheduled meeting of the year today, and 7th overall.

Upon adjournment, Federal Reserve Chairman Ben Bernanke will release a formal statement to the market. In it, the Fed is expected to announce “no change” to the Fed Funds Rate.

Currently, the Fed Funds Rate is within a target range of 0.000-0.250 percent.  It’s been at this same level since December 2008.

Note that the Feds Funds Rate is not “a mortgage rate” — nor is it a a consumer rate of any kind. The Fed Funds Rate is a rate that defines the cost of an overnight loan between banks. And, although the Fed Funds Rate has little direct consequence to everyday Plymouth homeowners, it is the basis for Prime Rate, the interest rate on which most consumer cards are based, plus many business loans, too.

Therefore, because the Fed Funds Rate won’t change today, neither will credit card rates.  Mortgage rates, however, are a different story.  Mortgage rates should change today — regardless of what the Fed does.

It’s more about what the Fed says.

In its statement, the Federal Reserve will highlight strengths and weaknesses in the economy, and threats to growth over the next few quarters. Depending on how Wall Street interprets these remarks, mortgage rates may rise or fall.

If the Fed’s comments signal better-than-expected growth, bond markets should lose and mortgage rates should rise. Conversely, if the Fed’s comments signal worse-than-expected growth, mortgage rates should fall.

If you’re actively shopping for a mortgage, it may be prudent to lock your rate ahead of the Fed’s announcement today. The Fed adjourns at 2:15 PM ET.  Call your loan officer to lock your rate.

The Fed meets 8 times annually.


August’s Fed Minutes Lead Mortgage Rates Higher

David Kosmecki | September 2, 2010 in FOMC | Comments (0)

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FOMC August 2010 MinutesHome affordability took a slight hit this week after the Federal Reserve’s release of its August 10 meeting minutes.

The “Fed Minutes” is a lengthy, detailed recap of a Federal Open Market Committee meeting, not unlike the minutes published after a corporate conference, or condo association gathering. The Federal Reserve publishes its meeting minutes 3 weeks after a FOMC get-together.

The minutes are lengthy, too.

At 6,181 words, August’s Fed Minutes is thick with data about the economy, its current threats, and its deeper strengths. The minutes also recount the conversations that, ultimately, shape our nation’s monetary policy.

It’s for this reason that mortgage rates are rising. Wall Street didn’t see much from the Fed that warranted otherwise.

Among the Fed’s observations from its minutes:

  • On the economy : The recession was deeper than previously believed
  • On jobs : Private employment is expanding slowly
  • On housing : The market was “quite soft” in June

Now, none of this was considered “news”, per se. If anything, investors were expecting for harsher words from the Fed; a bleaker outlook for the economy. And, because they didn’t get it, monies moved to stocks and mortgage bonds lost.

That caused mortgage rates to rise.

The Fed meets 8 times annually. Its next meeting is scheduled for September 21, 2010.  Until then, mortgage rates should remain low and home affordability should remain high. There will be ups-and-downs from day-to-day, but overall, the market is favorable.


A Simple Explanation Of The Federal Reserve Statement (August 10, 2010 Edition)

David Kosmecki | August 10, 2010 in FOMC | Comments (0)

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Putting the FOMC statement in plain EnglishToday, in its first meeting in 6 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 

The Fed Fund Rate remains at a historical low, within a prescribed target range of 0.000-0.250 percent.

In its press release, the FOMC said that, since June, the pace of economic recovery “has slowed”. Household spending is increasing but remains restrained because of high levels of unemployment, falling home values, and restrictive credit.

Today’s statement shows less economic optimism as compared to the prior year’s worth of FOMC statements dating back to June 2009. The Fed is looking for growth to be “more modest in the near-term” than its previous expectations.

Weaknesses aside, the Fed highlighted strengths in the economy, too:

  1. Growth is ongoing on a national level
  2. Inflation levels remain exceedingly low
  3. Business spending is rising

As expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”.

There were no surprises in the Fed’s statement so, as a result, the mortgage market’s reaction to the release has been neutral. Mortgage rates in Minnesota are unchanged this afternoon.

The FOMC’s next meeting is scheduled for September 21, 2010.


The Fed Is Meeting Today. Should You Float Or Lock Your Mortgage Rate?

David Kosmecki | in FOMC | Comments (0)

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Fed Funds Rate June 2007-June 2010The Federal Open Market Committee holds a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.

The FOMC is the government’s monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate

The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.

It’s the lowest Fed Funds Rate in history.

Because the Fed Funds Rate is near zero, it’s accommodative of economic growth, spurring businesses and consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.

The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant.  It’s expect that the Fed will reiterate that message in today’s post-meeting press release.

However, just because the Fed Funds Rate won’t be changing today, that doesn’t mean that mortgage rates won’t.  Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.

Mortgage rates in Wisconsin tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.

When Ben Bernanke & Co. speak, Wall Street listens. 

The Fed’s press release today will be dissected and analyzed.  Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.

Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock before 2:15 PM ET today.


The Fed’s June Minutes Keep Mortgage Rates In Rally-Mode

David Kosmecki | July 16, 2010 in FOMC | Comments (0)

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FOMC June 2010 MinutesAccording to Freddie Mac, mortgage rates made new all-time lows this week and the good news is that rates look poised to fall even more.

Since the Federal Reserve’s release of its June 2010 meeting minutes Wednesday, mortgage rates are dipping even more and one of the main reasons why is because of some choice Fed words.

If you’ve never seen a Fed Minutes release, it reads academic. The document is page after page of stats, facts and figures about the U.S. economy, accompanied by an in-depth recap of the intra-Fed member debates that shape the nation’s monetary policy.

At 7,333 words, the June Fed Minutes is the unabridged version of the more well-known, post-meeting press release.  The corresponding press release was just 360 words.

As it turns out, Wall Street didn’t like what it read in the minutes.  Specifically:

  1. The Fed expects below normal growth through 2012
  2. The Fed’s outlook for employment has dipped
  3. Credit conditions are easing only slowly

Furthermore, the Fed said its action may be needed if the economy were “to worsen appreciably”.

Overall, the economic optimism the Fed displayed earlier this year appears to be waning. The economy is moving forward — just not as quickly as expected.  That should bode well for mortgage rates and home shopping in Plymouth.

Mortgage rates were down Wednesday afternoon and Thursday and remain historically low. All it would take to reverse rates, however, is a run of positive news on jobs, growth, and consumer spending.  Therefore, if you know you need to lock a mortgage rate in the near-term, it may be a good time to make the call. 

Lock your mortgage rate and move on.


A Simple Explanation Of The Federal Reserve Statement (June 23, 2010 Edition)

David Kosmecki | June 23, 2010 in FOMC | Comments (0)

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Putting the FOMC statement in plain EnglishToday, in its first meeting in 5 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 

The Fed Fund Rate remains within its target range of 0.000-0.250 percent.

In its press release, the FOMC said that, since April, “the economic recovery is proceeding” and that the jobs market “is improving gradually”. Business spending “has risen significantly”, too, with the exception of commercial real estate.

Today’s statement is the 8th straight press release in which the Fed shows optimism for the U.S. economy, dating back to June 2009.  Since that time, the Fed has terminated all of the programs it created to support the economy through the economic crisis.

The recession is widely believed to be over.

And, although the Fed’s statement acknowledged economic growth, it did highlight lingering threats, too.

  1. Employers are still reluctant to hire new workers
  2. European debt concerns could spill-over to the U.S.
  3. Bank lending is contracting

Also, as expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”, citing that “inflation has trended lower” recently.

Mortgage market reaction has been positive thus far. Mortgage rates in Wisconsin are slightly improved post-FOMC.

The FOMC’s next scheduled meeting is August 10, 2010.


A Simple Explanation Of The Federal Reserve Statement (June 23, 2010 Edition)

David Kosmecki | in FOMC | Comments (0)

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Putting the FOMC statement in plain EnglishToday, in its first meeting in 5 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 

The Fed Fund Rate remains within its target range of 0.000-0.250 percent.

In its press release, the FOMC said that, since April, “the economic recovery is proceeding” and that the jobs market “is improving gradually”. Business spending “has risen significantly”, too, with the exception of commercial real estate.

Today’s statement is the 8th straight press release in which the Fed shows optimism for the U.S. economy, dating back to June 2009.  Since that time, the Fed has terminated all of the programs it created to support the economy through the economic crisis.

The recession is widely believed to be over.

And, although the Fed’s statement acknowledged economic growth, it did highlight lingering threats, too.

  1. Employers are still reluctant to hire new workers
  2. European debt concerns could spill-over to the U.S.
  3. Bank lending is contracting

Also, as expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”, citing that “inflation has trended lower” recently.

Mortgage market reaction has been positive thus far. Mortgage rates in Minnesota are slightly improved post-FOMC.

The FOMC’s next scheduled meeting is August 10, 2010.