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.

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.

FHA Interest Rate Predictions

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:

1. The Existing Home Sales data for February is released Tuesday, along with the Home Price Index
2. The New Home Sales data for February is released Wednesday
3. 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.

The Fed’s Open Market Committed left rates unchanged.  The 9-1 vote leaves the Fed Funds Rate at 0.000-0.250%.

In its press release, the highlights were three-fold:

1. Economy:  “has continued to strengthen”
2. Jobs Market:  “is stabilizing”
3. Business Spending: “has risen significantly”.

This is six meetings in a row with an optimistic outlook.  The 2008-2009 recession is slowly going away and the economy is growing.  It’s not perfect and the economy still has threats:

1. High unemployment threatens consumer spending
2. Housing starts are at a “depressed level”
3. Consumer credit remains tight

The overall tone was positive inflation is within limits.  We don’t have another Fed meeting until April 27-28.

FHA interest rates responded positively to the news and we avoided a massive sell-off that would have pushed loan rates higher.

The next big looming threat is the end of the $1.25 trillion commitment to the mortgage market by March 31, 2010. Fed insiders estimate that the bond-buying program lowered mortgage rates by 1 percent since its start.

The FOMC adjourns from their scheduled 1-day meeting today, its second of the year.

The FOMC has held the Fed Funds Rate inside of a target range of .000-.250 percent since December 16, 2008, and the voting members of the Fed are anticipated to vote “no change” again today.

However, no change to the Fed Funds Rate doesn’t always mean no change in FHA interest rates. This is simply because the Fed Funds Rate is a different interest rate from the rates home buyers get from a loan officer.

• Fed Funds Rate : Short-term rate at which banks borrow from other banks
• FHA Mortgage Rate: Long-term rate of interest a homeowner pays on a mortgage .

FHA mortgage rates are a lot more responsive to what the Fed says as compared to what the Fed does.

After each FOMC meeting, Fed Chairman Ben Bernanke & Co issue a formal announcement to the markets. At roughly 400 words, the statement is a brief commentary around the strengths, weaknesses, and threats for the U.S. economy.

Wall Street watches the statement with great interest and this is the reason interest rates tend to be volatile on the days of an FOMC adjournment. One mention of a word like “inflation” and traders rush to dump their mortgage bond positions.

Inflation is the enemy of interest rates.

After the Fed’s last meeting in January, it told us that the economy had “weakened further”, led by steep declines both in housing and employment. Global demand was off, too. The negative tone of the Fed’s statement caused mortgage rates to fall to near an all-time low.

This month, expect a less gloomy message.

Since January, there has been a modest rebound in housing, employment appears more stable, and Retail Sales just posted huge gains. If the Fed alludes to improvement in any or all three, mortgage rates will more than likely reverse and zoom higher.

We can’t know very well what the Fed will say so if you’re floating a mortgage rate and wondering whether to lock, the safe approach would be to do it today prior to 2:15 PM ET.

The FHA interest rate lost ground last week for the first time in March.  It’s been a very good run for mortgage rates and they are currently lower than any of the experts were predicting.  The FHA loan rate is going to start the week at or below 5%.

Last week was very light on economic data.  This week is the exact opposite.

FHA Loan Rate Predictions | This Week

Expect volatility.  Here is just the economic data on tap:

• Monday : Industrial Production and Home Builder Index
• Tuesday : Housing Starts and Building Permits
• Wednesday: Consumer Confidence
• Thursday : Producer Price Index and Initial Jobless Claims
• Friday : Consumer Price Index and Continuing Jobless Claims

Beyond that, we have the Federal Open Market Committee meeting on Tuesday.

We don’t expect changes to the Fed Funds Rate, but the post-meeting press release is nearly always the start of a volatile afternoon.  Talk of economic strength will push up stocks and drive mortgage rates higher.  Talk of economic weakness will push stocks lower and typically pull loan rates a bit lower as well.  The issue is that there is a lot of room for rates to go up and not a lot of room for them to go lower.

The FHA interest rate improved last week pushed rates to their lowest levels since early February.

The economic data was negative:

• Consumer Confidence posted 16% short of expectations
• New Home Sales posted 13% short of expectations
• Initial Jobless Claims were higher than expected

Rates didn’t go as low as they could have.  Fed Chairman Ben Bernanke’s semi-annual statements to Congress eased concerns that the monetary policy would get too tight, too quick.  Stocks responded well at the end of the week as Bernanke confirmed that the Fed Funds Rate will stay low for an extended period of time and this took money out of the bond market.

This Week’s FHA Interest Rate Predictions

Friday’s Non-Farm Payrolls report, the “Jobs Report,” will likely be the big driver.  The expectation is that 30,000 jobs were lost in February.  A higher number will drive rates lower.  A lower number will drive the FHA loan rate higher.

We also have inflation data, notably the PCE, and the Fed’s Beige book on tap.

The FHA mortgage rates look great today, but this week has some highly influential reports that could cause dramatic swings by the week’s end.

Last week was brutal.  The FHA interest rate was under heavy selling pressure all week and lost ground for the second week in a row.   The primary causes were inflation figures that came in higher than expected and then two pieces of news from the Federal Reserve.

It was the single worst sell-off in any week since late last year.

The Federal Reserve played two big parts in the rates jumping.  First, the January meeting minutes from the Fed meeting revealed a significantly more optimistic Fed than we saw in the brief press release that followed the meeting.  Second, and largely unexpected, the Fed raised the Discount Rate to 0.75%.   Mortgage rates do okay in times of economic troubles.  These statements and ensuing actions by the Fed indicate that better times, and higher FHA loan rates, are coming.

The Fed Funds Rate, and the Prime Rate, should remain the same for the near future, but the Fed clearly drew a line in the sand:  The economy is healthy enough where the loose monetary policy is coming to an end.

News for This Week’s FHA Mortgage Rate Predictions

This is a big news week:

• Tuesday : Case-Shiller Home Price Index, Consumer Confidence
• Wednesday : New Home Sales
• Thursday : FHFA Home Price Index, Initial Jobless Claims
• Friday : Existing Home Sales, Personal Consumption Expenditures

Even after last week’s big sell-off, mortgage rates still have enough room to jump an extra .25% without very much work at all.

If you’ve been trying to perfectly time the bottom of mortgage rates, you missed it.   At this point, the best time to get an FHA mortgage is now, not later.  We still have a .5% increase to the UFMIP hitting in just 40-ish days.  No matter how you look at it, unless mortgage rates dip significantly, an FHA home loan approval looks to be more expensive after April 5th.

The FHA interest rate is now at its highest level of the year.

Yesterday’s release of the Federal Reserve Minutes from the January meeting sent mortgage rates higher.

The release is a very detailed follow-up document that expands greatly on what was stated in the brief post-meeting press release.  The Fed Minutes outline the debates and dissenting opinions which is a more thorough view than just the summary statements of the press release.  Yesterday, Wall Street took a look at the debates and didn’t like what they were seeing.

Specifically, they reacted to:

1. Confirmation that the mortgage bond purchase program will end March 31, 2010
2. To tighten monetary policy, the Fed intends to raise the Fed Funds Rate
3. Consumer spending is improving

These are all great economic signs.  They are not good for mortgage rates.  The last part of the Fed’s comments is what really hurt the bond market:  “higher medium-term inflation.”  Inflation hurts bonds which in turns hurts mortgage rates.

This growing Fed optimism is great except for two things:  the FHA interest rate is rising and so too will home prices.   Stronger economies push both of those figures higher.

If you are looking at a home purchase or refinance, it might be wise to push your time frame up.   Rates are likely to continue to rise after March 31st and will likely rise in these next 40 days as well.

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.

There was no mention of the housing market’s strength.  The last 3 statements from the Fed included that specific verbiage.

It’s the fifth straight statement in which the Fed spoke about the economy with optimism.  This should signal to markets that 2008-2009 recession is over and that economic growth is returning to U.S. economy.

The economy isn’t without threats, however, and the Fed identified several in its press release, including:

1. Credit remains tight for consumers
2. Businesses are reluctant to hire new workers
3. Housing wealth is down

The message’s overall tone, however, remained positive and inflation appears is still within tolerance.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to wind down its $1.25 trillion commitment to the mortgage market by March 31, 2010.  This is noteworthy because Fed insiders estimate that the bond-buying program suppressed mortgage rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is, in general, negative. Mortgage rates in Oak Park are rising this afternoon.

The FOMC’s next scheduled meeting is March 16, 2010.