Premiere Mortgage Services Inc. - Dana Bain

The April 2012 FOMC Statement And Its Effect On Mortgage Rates

April 25th, 2012 3:27 PM by Robin Bain

Fed keeps rates unchanged, says:

3 officials would prefer first rate hike in 2012, 3 officials would prefer 2013, 7 officials prefer 2014, 4 prefer 2015, 0 in 2016
End of 2014, 7 see Fed Funds Rate below 1%, 3 see it at least @ 1% but lower than 2%
Raise forecast for 2012 GDP Growth, lower forecast for 2012 unemployment, and raise forecast for 2012 core inflation, see long term jobless rate between 5.2 and 6%, and GDP +2.3 to +2.6%

Economy expanding moderately, labor market improved
Jobless rate declined but remains elevated
Will keep rates exceptionally low through 2014
Vote 9-1, Lacker dissented
Says inflation has picked up somewhat but longer term expectations stable.


Near-Unanimous Vote : No Change In Rates

Wednesday, the Federal Reserve's Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current range of 0.000-0.250 percent.

The April vote marks the fifth consecutive FOMC meeting to adjourn with a near-unanimous vote.

The Fed Funds Rate has been held near zero percent since December 2008.

Just 5 years ago, it was 5.25%

In its press release, the Federal Reserve acknowledged that the economy has been "expanding moderately" since its last meeting in March. The growth is the result of an improving labor market; rising consumer spending; and fixed business investment.

The Fed was careful to add, however, that growth remains threatened by "downside risks" associated with strains in global financial markets. This is direct reference to ongoing sovereign debt issues among the PIIGS -- Portugal, Ireland, Italy, Greece and Spain.

Here at home, the "depressed" U.S. housing market is showing signs of improvement.

Mortgage Rates Rise Before The Fed Funds Rate

This was the FOMC's third meeting of the year. The sub-committee introduced no new economic stimulus, nor did it discontinue any of its existing programs. It re-affirmed its plan to keep the Fed Funds Rate near 0.000% "through late-2014"; and said that it will continue to buy mortgage-backed bonds in the open market.

So, although the Fed Funds Rate will remain low for another 29 months, the same cannot be said for mortgage rates. This is because the Federal Reserve does not set mortgage rates -- Wall Street does.

In a recovering economy, mortgage rates rise long before the Fed Funds Rate does.

Mortgage rates are real-time reflection of Wall Street's long-term sentiment. The Fed Funds Rate, by contrast, is a short-term rate meant to assist the Federal Reserve in speeding up, or slowing down, the U.S. economy. With the Fed Funds Rate held near zero, it's an expansionary stimulus and expansion is often great for stocks but bad for mortgage rates.

Today's low rates are constantly at risk.

Mortgage Rates Can't Crack Lower

Mortgage rates are super-low but they can't stay low forever. Even massive government stimulus eventually tends to inflation which, in turn, pulls mortgage rates higher. Since the start of the year, rates have bounced off of a technical floor more than a half-dozen times and can't seem to cut lower.

Rates may not have bottomed, but there's more room for mortgage rates to rise than to fall.

If you're in the process of buying a home, then, or refinancing a mortgage, it's an opportune time to lock your rate. Low rates can't last forever -- and most definitely won't.

Click here to see todays mortgage rates

Dana Bain

Premiere Mortgage Services Inc.



Posted in:General
Posted by Robin Bain on April 25th, 2012 3:27 PM


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