Today, The Federal Open Market Committee voted 9-1 to keep the Federal Funds Rate between 0 and 25 basis points as it has been for the past 15 months. However, this is no guarantee.
Federal Funds Rates vs. Mortgage Rates
- When the Federal Reserve votes to leave the Federal Funds Rates as they are, it’s not the same as keeping mortgage rates the same. The Federal Reserve’s powers don’t extend to mortgage markets. Mortgage rates are created as a result of open trading on Wall Street. The Federal Funds Rate and mortgage rates are unrelated.
- In the past 20 years, there have been several instances where the two have been within 1 point and as wide as 5 points in spread. Before that, there are instances where the spread has been negative. A standard 30-year fixed mortgage rate was less than the Federal Funds Rate. This non-linear spread alone is an indication that the two are unrelated.
The FOMC’s Statement Will Affect Rates
- Though the Fed announced its intent to keep the Fed Funds Rate near zero “for an extended period of time”, this will still have an affect on mortgage rates. The press release carried a positive tone and a more upbeat view about the economy and economic growth. They also called attention to an increase in business spending, another small sign that the current market conditions are possibly improving. Though there was no indication that Federal Funds Rates would rise at any given time in the near future, this optimistic announcement will cause mortgage rates to rise.
Locked Loans
- If you are already locked in on your loan, your rate should not change. If you are not yet locked in, talk to your loan officer. If rates go up, as they are likely to do, you may be affected.
