Posts Tagged ‘FOMC’

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A Simple Explanation Of The Federal Reserve Statement (April 28, 2010 Edition)

Wednesday, April 28th, 2010

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

In its press release, the FOMC noted that, since March, the U.S. economy “has continued to strengthen” and that the jobs markets “is beginning to improve”.  This is a step up from the last meeting after which the Fed said jobs were “stabilizing”.

It also reiterated that business spending “has risen significantly”.

Today’s statement marks the 7th straight press release in which the Fed shows optimism for the U.S. economy. Furthermore, the Fed has now closed all but one of the programs it created to support markets during last year’s financial crisis.

Threats remain to growth, however. The Fed fingered a few:

  1. Employers are reluctant to hire new workers
  2. High unemployment threatens consumer spending
  3. Consumer credit (still) remains tight

Also in its statement, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent “for an extended period”.  This was expected.

Overall, the statement’s tone was positive and the Fed noted that inflation is within tolerance.

Mortgage market reaction has been muted thus far. Mortgage rates in San Antonio are unchanged post-FOMC.

The FOMC’s next scheduled meeting is a 2-day affair, June 22-23, 2010.  The 55-day span between meetings will be the FOMC’s longest of 2010.

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What's Ahead For Mortgage Rates This Week (April 26, 2010)

Monday, April 26th, 2010

Federal Reserve meets Apr 27-28 2010Mortgage markets worsened last week in see-saw trading. By the time Friday’s market closed, mortgage rates in Texas were higher across the board — ARMs, fixed rates, FHA and conventional.

The biggest stories of last week were actually non-stories.

First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product.  In addition, Greece moved closer to securing emergency funding that will help it stave off default.

When these two issues were threats earlier in the month, mortgage bonds rallied on safe haven buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and mortgage rates rose.

By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.

  • Monday : Greece is expected to announce an aid package
  • Tuesday : Case-Shiller Index reports on home values from February
  • Wednesday : Fed adjourns from its 2-day meeting
  • Thursday : Initial Unemployment Claims are released
  • Friday : GDP and consumer confidence numbers are released

Furthermore, Wall Street will have its eye on the Senate’s questioning of key Goldman Sachs employees in the wake of the SEC’s fraud charge.

In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse.  And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.

The best defense against rising mortgage rates is to execute a rate lock.

If you’re nervous about rates moving higher, call your loan officer and execute your rate lock today.

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The March Fed Minutes Explains Why Home Sales Weren't Worse This Winter

Wednesday, April 7th, 2010

FOMC March 2010 MinutesMortgage markets improved yesterday after the Federal Reserve released its March 16, 2010 meeting minutes. It’s good news for in Houston home buyers and rate shoppers — rates could have just as easily gone the other way.

The Fed Minutes is a detailed recap of the debate and discussion that shapes the nation’s monetary policy. The notes are dense; it takes 3 weeks to compile them for publication.

As compared to the more well-known, post-meeting press release, the Fed Minutes are extremely lengthy. For example:

If the press release is the executive summary, the Fed Minutes are the novel.

The extra words matter.

The minutes recount what the Fed did, how the Fed did it, and what the Fed plans to do next – and, in these minutes, Wall Street looks for clues.

This is why the report is important to every rate shopper in the country.

When the Federal Reserve publishes the minutes from its meetings, it leave clues about the groups next policy-making steps.  For example, in March’s Fed Minutes, it’s clear that the Fed’s concern about inflation is hugely diminished and that’s a major plus for the mortgage bond market.

Inflation causes mortgage rates to rise. The absence of inflation, therefore, helps them to fall.  This improves home affordability, among other things.

Similarly, the Fed Minutes note that real estate sales may have been worse throughout the winter months if not for low mortgage rates and the sense among Americans that home prices were troughing. We may infer, therefore, that rising rates may suppress home sales later this year.

Markets are always looking for clues from inside the Fed and the last meeting’s minute signal that the economy is on its way up.

If you’re looking for a bargain in the housing market, your window to act may be closing.

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The Federal Reserve Statement Explained in Plain English (March 16, 2010)

Wednesday, March 17th, 2010

Putting the FOMC statement in plain EnglishYesterday, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged, in 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” and that the jobs markets “is stabilizing”.  It also said that business spending has “has risen significantly”.

This is a slight departure from the Fed’s January statement in which housing was not mentioned and business spending was said to be “picking up”.

It’s also the sixth straight statement from the FOMC in which the Fed described the economy with optimism. This is a signal to markets that 2008-2009 recession is over and that economic growth is returning.

The economy is not without threats, however, and the Fed pointed out several:

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

The message’s overall tone, however, remained positive and inflation was within tolerance limits. We all know that inflation is “mortgage rates’ worst enemy”, so that was a very big sigh of relief for the mortgage bond market.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to end its $1.25 trillion commitment to the mortgage market by March 31, 2010 (yup, a couple weeks away). Fed insiders estimate that the bond-buying program lowered mortgage rates by 1 percent since its start, and after the exit, you should definitely expect mortgage rates to start creeping up.

Why?

Think of it in terms of selling a product. When you have a guaranteed buyer, you’re willing to let your product go for a little less of a markup (wholesale); however, when you MAY get a buyer here or there and nothing is set in stone, you’re going to try and make up for it by marking up the price.

Well, that’s exactly what’s going to happen to mortgage rates when the Fed goes bye-bye and private investors start crawling in wanting more profits.

Mortgage market reaction to yesterday’s Fed press release was, in general, hesitant to make a move and Texas mortgage rates went unchanged. Personally, I floated all clients’ transaction into the meeting, but was standing by to lock ‘n load in case things went south.

Keep an eye out for the FOMC’s next scheduled meeting that’s on April 27-28, 2010 – this puppy’s going to be a 2-day affair, and I think its going to set the pace for where mortgage rates are going to be headed this year.

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Tommy is a senior mortgage consultant with Envoy Mortgage. For a free mortgage consultation, you can email him at
tommy@tr-mg.com. You can also find him on Twitter at @RightMtgGuy.

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A Rate-Locking Strategy For Today's Fed Meeting

Tuesday, March 16th, 2010

Fed Funds Rate (Feb 2007 - March 2010)The Federal Open Market Committee adjourns from a scheduled 1-day meeting today, its second of the year.

The FOMC has held the Fed Funds Rate in a target range of 0.000-0.250 percent since December 16, 2008, and the voting members of the Fed are expected to vote “no change” again today.

However, no change in the Fed Funds Rate doesn’t necessarily mean no change in mortgage rates.  This is 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 each other
  • Mortgage Rate : Long-term rate of interest a homeowner pays on a mortgage

Mortgage rates are 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 press release to the markets. At roughly 400 words, the statement is a brief commentary on the strengths, weaknesses, and threats for the U.S. economy.

Wall Street watches the statement with great interest and this is why mortgage rates are often 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 mortgage 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’s 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 likely reverse and zoom higher.

Keep in mind that there’s no way to know know what the Fed will say after its meeting, so if you’re wanting to play it safe, lock you mortgage rates before 2:15 PM ET.

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