The Federal Reserve adjourns from a scheduled, 2-day meeting today. It’s one of 8 scheduled Fed meetings for 2010.
Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.
The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.
The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans. Prime Rate is equal to the Fed Funds Rate + 3 percent. Credit card rates, therefore, will likely stay flat today, too.
Mortgage rates, however, should change. Possibly by a lot. The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).
The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight vrious parts of the economy, identifying strengths, weaknesses and probable threats to growth.
These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip – mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.
It’s a difficult time to be shopping mortgages in Illinois.
Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.
Therefore, if you’re actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall. This is, however, a lot of room for them to rise.
The Fed adjourns at 2:15 PM ET. Call your loan officer to lock your rate.
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FHA interest rates closed the week relatively unchanged last week, but it was anything but a steady week. Rates improved Monday, Tuesday and Wednesday and then sold off Thursday and Friday.
These rates continue to confound the experts. No one forecast this 5% range to have held steady for this long. Thursday and Friday’s sell-off might be indicative of the speed at which rates will go up–and they will eventually go back up.
Last week’s big story was the Fed meeting. Synopsis: Fed Funds Rate unchanged, likely to stay low for a while, and things are improving. Notably, we have improvements in the credit markets, businesses are spending, and the recession is behind us.
That’s not to say the economy is completely fixed. There are still looming threats that could slice into consumer spending and slow down this recovery.
This week, we are watching two things. The Fed’s $1.25 trillion mortgage buyback program ends at the end of the month. All indications are that rates will rise. The Fed’s estimates are that the program lowered rates by about 1%. The question is how quickly the market will absorb that 1% back in the form of higher mortgage rates.
We’re also watching the news:
- The Existing Home Sales data for February is released Tuesday, along with the Home Price Index
- The New Home Sales data for February is released Wednesday
- Consumer Confidence data hits Friday
Strength in any — or all three — of these reports should put pressure on mortgage rates to rise.
Add one more wildcard: Kansas Fed President Hoenig’s scheduled speech Wednesday morning. Hoenig was the lone dissenting vote at the Fed meeting–Hoenig voted to raise rates. Normally, Fed members stay on topic in public appearances, but it wouldn’t be unprecedented for a Fed President to speak his or her mind.
His words could lead Wall Street to rethink its position on the mortgage bond market and that could cause rates to spike Wednesday afternoon.
Mortgage rates remain volatile and are still relatively low. If you’re unsure of whether now is a good time to lock in, consider that there’s a lot more room for rates to rise than to fall right now. Especially with momentum shifting for the worse.
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The Federal Reserve adjourns from a scheduled, 2-day meeting today. It’s one of 8 scheduled Fed meetings for 2010.