May 2, 2013 | Federal Reserve
Wednesday’s Federal Open Market Committee (FOMC) statement indicates the Federal Reserve’s commitment to keeping long term interest rates and inflation under control.
The Fed will continue monitoring inflation, but does not expect inflation to rise more than 0.50 percent above its target rate of 2.00 percent over the next one to two years.
Ongoing monitoring of inflation and unemployment, as well as developing economic news, will guide the Fed in its future determinations concerning policy for its present iteration of quantitative easing (QE3).
Currently, the Fed purchases $85 billion of treasury securities and mortgage –backed securities each month with the goal of keeping long-term interest rates lower.
This includes mortgage rates, which can assist homebuyers with qualifying for mortgage loans in an environment of increasing home prices. Other goals include stabilizing the labor market, and limiting inflation.
Job Growth To Be Determining Factor On Fed Interest Rate Action
The statement also noted that the Fed will keep its interest rates between 0.00 and 0.25 percent, until the Fed sees the national unemployment rate fall below 6.50 percent.
While noting that the housing sector is improving, the Fed stated concerns about ongoing high unemployment rates. Jobs are a key aspect to supporting the economy, as 70 percent of the U.S. economy involves the purchase of goods and services by consumers.
The Fed also repeated its position to evaluate the efficacy of its quantitative easing program; if the agency finds that the program is not achieving their desired objectives, changes to the program can be expected.
While a clear majority of FOMC members voted to keep current policies intact, one member voted against this course of action citing the potential for continued quantitative easing at current levels to fuel inflation.
The bottom line for today’s statement is that the Fed continues its “wait and see” position concerning quantitative easing and low federal interest rates.The committee also re-asserted its intention to gradually reduce quantitative easing when it’s time for a change.
In addition, the Fed is committed to monitoring a wide range of economic data with an eye toward adjusting its policies in the best interest of economic recovery.
Apr 12, 2013 | Federal Reserve
The minutes for the Federal Open Market Committee (FOMC) meeting held March 19 and 20 were released on Wednesday April 10, 2013.
These periodic meetings by the FOMC cover a wide ranging group of topics that impact the overall economy in the United States.
The decisions made and acted upon from the FOMC meetings often sway the real estate and residential financing markets.
Some highlights of the recent FOMC minutes for the March meeting include:
Jobs and Unemployment Gaining Steam
The unemployment rate fell to 7.7 percent in February.
While lower than the average unemployment rate for Q4 2012, the rates of long-term unemployment and part-time employment for economic reasons saw little change, and both measures remained high.
This suggests that the economy is improving in some areas, while others including employment are not so quick to recover.
Housing Markets Looking Robust
U.S. housing markets continued to improve during the inter meeting period, but construction of new housing faced obstacles including tighter credit and in some areas a lack of available building space.
While housing prices are improving, employment rates and wages will also need to expand for consumers to keep pace with rising home prices.
Some of the Fed Meeting participants continued to be very positive about the prospects of the real estate sector noting rising home prices and demand.
At the same time, an overall tone of restraint and caution was expressed regarding the continuing purchase of Mortgage Backed Securities (MBS).
Any slowing in the Fed’s commitment to their previous levels of MBS purchases may create upward pressure on Massachusetts home mortgage interest rates.
Personal Finances and Consumer Confidence
Household expenditures rose modestly during January and retail sales, excluding auto sector, increased at a strong pace in February. Sales of light autos also rose.
Household wealth also increased for homeowners due to increases in home values, which is good news for current homeowners and may be an incentive for new home buyers to move forward and purchase real estate.
Recovering Economy Leads Toward Government Spending Pull Back
The FOMC minutes suggest that the Fed is not likely to end its quantitative easing (QE) program immediately, but the first quarter of 2014 was cited as a potential date for the program to end.
Gradual decreases in the Fed’s purchases of bonds and mortgage backed securities are expected before QE ends, and this could cause mortgage rates to rise as MBS prices fall.
Jan 31, 2013 | Federal Reserve
The Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the Federal Funds Rate within its current range of zero to 0.25 percent, and to continue its current stimulus program of purchasing $85 billion monthly in Treasury bonds and mortgage-backed securities (MBS).
Citing weather-related events such as Hurricane Sandy and drought in the Midwest, the committee said in its statement that information received since its December 2012 meeting “suggests that growth in economic activity has paused in recent months in large part because of weather-related disruptions and other transitory factors.”
Concerns over the then-looming fiscal cliff crisis may have also contributed to the economic contraction during the last quarter of 2012. Positive economic trends observed by the Fed included:
- Improved household spending
- Improving housing markets
- Growth in business fixed investments
The Fed initiated its third round of quantitative easing (QE3) in September as part of an ongoing effort to hold down interest rates and to encourage business spending. The benchmark Federal Funds Rate will remain between zero and.0.25 percent until the unemployment rate falls to 6.5 percent and provided that inflation remains stable.
The Fed Funds Rate has stayed near zero since December 2008.
The national unemployment rate was 7.8 percent in December, and Wall Street expects it to be 7.7 percent for January. The Department of Labor will release its monthly jobs report on Friday; this report includes the monthly unemployment rate. Inflation is expected to remain at or below the Fed’s target level of 2.0 percent or less for the medium-term.
While noting that “strains on global financial markets have eased somewhat,” the FOMC said that it “continues to see downside risks to the economic outlook.” Low overall interest rates and gradual inflation work in favor of home buyers as home prices and mortgage rates are likely to rise at a gradual pace.
Mortgage rates in Worcester County area improved slightly after the FOMC release.
Dec 12, 2012 | Federal Reserve
The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.
For the tenth consecutive meeting, the FOMC vote was nearly unanimous. Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.
The Fed Funds Rate has been near zero percent since December 2008.
In its press release, the Federal Reserve noted that, since its last meeting in late-October, the U.S. economy has expanded “at a moderate pace” despite “weather-related disruptions”. It also acknowledged that “strains in global financial markets” remain a threat to U.S. economic growth.
This comment is in direct reference to the Eurozone, its sovereign debt concerns, and its nation’s economies.
The Fed included the following observations in its statement, too :
- Growth in employment is expanding but unemployment is elevated
- Inflation pressures are stable, and below the Fed’s target range of 2%
- Business spending on equipment and structures has slowed
In addressing the housing market, the Fed said that there has been “further signs” of improvement and the group re-affirmed its commitment to the $40-billion monthly QE3 bond buying program.
QE3 is meant to suppress U.S. mortgage rates from rising too high, too quickly.
Lastly, the Federal Reserve announced an explicit economic target for when it will begin to consider raising the Fed Funds Rate from its current target range near 0.000%. When the national Unemployment Rate reaches 6.5%, the Fed said, it will likely move to start raising its benchmark borrowing rate.
Previously, the Fed had provided only a date-based target of mid-2015.
The 6.5% Unemployment Rate target may be pre-empted by rising inflation rates. The Fed does not expect price pressures to mount prior to jobless rates dropping from the current 7.7% levels, however.
Mortgage rates in Worcester County area are rising post-FOMC announcement. Many lenders raised mortgage rates mid-day Wednesday in response to the Fed’s statement.
The FOMC’s next scheduled meeting is a two-day event scheduled for January 29-30, 2013.
Dec 11, 2012 | Federal Reserve
The Federal Open Market Committee (FOMC) begins a 2-day meeting today, its last of 8 scheduled meetings this year.
The Federal Open Market Committee is a 12-person subcommittee within the Federal Reserve. It’s the group which votes upon U.S. monetary policy.
The monetary policy action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight.
Since late-2008, the Fed Funds Rate has been near zero percent.
Prime Rate, a business and consumer interest rate used in lines of credit and credit card rates, is based on the Fed Funds Rate. Prime Rate has been similarly unchanged since 2008.
One rate which the Federal Reserve does not set is the 30-year fixed rate mortgage (FRM) rate.
Like all other mortgage rates, the 30-year FRM is based on the market value of mortgage-backed bonds; securities bought and sold by investors.
There is no correlation between the Federal Reserve’s Fed Funds Rate and the everyday homeowner’s 30-year fixed rate mortgage rate. Some months, the two rates converge. Other months, they diverge. Since 2000, they’ve been separated by as many as 5.29 percentage points.
They’ve been as close as 0.52 percentage points.
However, although the Federal Reserve does not set U.S. mortgage rates, that doesn’t mean that it can’t influence them. The Fed’s post-meeting press release has been known to make mortgage rates get volatile.
If, in its post-meeting press release, the Fed notes that the U.S. economy is slowing and that new economic stimulus is warranted, mortgage rates will likely fall throughout Massachusetts. This is because additional Fed stimulus would likely lend support to U.S. mortgage markets which would, in turn, boost demand for mortgage-backed bonds.
Conversely, if the Fed acknowledges stronger-than-expected growth in the U.S. economy and no need for new stimulus, mortgage rates are expected to rise.
Either way, mortgage rates will change Wednesday upon the FOMC’s adjournment — we just don’t know in which direction. Rate shoppers may see fluctuations of as much as 0.250 percent.
The FOMC adjourns at 12:30 PM ET.
Nov 19, 2012 | Federal Reserve
The Federal Reserve released its October Federal Open Market Committee (FOMC) meeting minutes last week, revealing a Fed in disagreement about the future of the U.S. economy and about what, if any, stimulus may be warranted in the next 12 months.
The “Fed Minutes” recaps the conversations and debates that transpire during an FOMC meeting, and is published 3 weeks after the meeting adjourns.
According to the October minutes, FOMC members “generally agreed” that a housing recovery is under way nationwide, citing increased housing prices, higher sales volume, and rising construction in many parts of the country.
FOMC members made no major policy changes at their last meeting, but agreed that a continuation of additional asset purchases would likely be necessary in 2013, in order to achieve a substantial improvement in the labor market.
Other notes from within the Fed Minutes included:
- On housing: Signs of improvement are “encouraging”, and mortgage rates are at historic lows
- On inflation: Essentially “unchanged”, notwithstanding recent increases in energy prices
- On Europe: Production indicators signal contraction in business activity and expansion
- On employment: Employment is rising, and unemployment remains high
The economic forecast prepared by the FOMC staff shows an uptick in consumer spending, residential construction, and labor market conditions which more than offset recent downgrades in the business fixed investment and the industrial production outlooks.
Through 2013, economic activity is projected to accelerate gradually, supported by a lessening in fiscal policy restraints. The Fed also anticipates that Worcester County area home buyers will benefit from looser credit standards.
Low mortgage rates are helping home buyers, too.
According to Freddie Mac, the average 30-year fixed rate mortgage rate was 3.34% last week, down from 3.55% in September. This has given a boost to buyer purchasing power nationwide and the year-end housing market may reflect it. Demand for homes remains strong.
The next FOMC meeting is scheduled for December 11-12, 2012.
