What Does The Federal Reserve Statement Mean

Published on September 21, 2011 by

Putting the FOMC statement in plain EnglishThe Federal Reserve agreed with a majority vote to keep the Fed Funds rate unchanged. This means that they are seeing the economy as still sputtering and trying to stimulate the economy with more spending by making interest rates lower or keeping them low.

The economy continues to stay in the dumps and the official language from the Feds statement are detailed below:

  1. Economic growth “remains slow”
  2. Unemployment rates “remain elevated”
  3. The housing sector “remains depressed”

Not all signs indicate that the economy is in poor shape but until you start seeing jobs created and more spending it is very unlikely that you will see too much change in the economy and the housing sector specifically.

If you are not part of “main street” then consider yourself fortunate and start taking advantage of the many opportunities available to you. If you are not considered rich you may want to tighten your belt and prepare for a lengthy rough patch prior to recovery.


Operation Twist and How It Impacts Mortgage Interest Rates

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Comparing 30-year fixed to Fed Funds Rate (1990-2011)

The Fed Funds Rate is not always going to parallel with mortgage interest rates. You can see clearly in the graph above how the spread between interest rates and the Fed Fund Rate will change over time. The Fed met today and announced Operation Twist.

Keep in mind that the mortgage interest rates are not set by the Feds. Rather the best way to keep an eye on what interest rates are doing is to watch the price of mortgage-backed bonds. There is very little consistency between the Fed Funds Rate and the mortgage interest rates where there they have been separated by as much as 5.29 percent, and have been as close as 0.52 percent.

Currently the spread/difference is 4% which means that there is plenty of room for the interest rates to move both up and down. Although based on the economy and the announcements from Ben Bernanke you could expect interest rates to remain low until the middle of 2013.

Interest rates continue to stay at record breaking lows. If you are in a position to purchase or refinance your home then you are very fortunate and will realize significant savings. With VA Home Loans the veterans are saving thousands of dollars with a simple streamline that lowers their interest rate and it takes very little effort to qualify. If you have a VA Loan and have questions simply contact a VA Loan Specialist for a free consultation (866) 825-6261.


Possible Fed Stimulus in August

Published on August 31, 2011 by

FOMC Minutes August 2011

The Federal Reserve meets eight times a year and after each meeting they produce  a brief statement that is shared immediately after the meeting and then they share the Minutes a few weeks later. The statement provides the highlights of the meeting and the Minutes provides all of the details.

The detailed Minutes from the last Fed meeting on August 9, 2011 was released today. The disappointing part is that the minutes have not revealed any additional insights or information.

For those that have plenty of time on their hands they can read the minutes and/or the highlights here:

  • On growth : Economic growth had been slower than the committee expected
  • On housing : The market “remains depressed”. Underwriting standards are “tight”.
  • On rates : The Fed Funds Rate will remain low until mid-2013

The next time the Fed is scheduled to meet is September 20-21. Fed Chairman Ben Bernanke has extended the meeting to two days instead of the normal one day. It is widely anticipated that the extra day of meeting will be used to discuss additional and new forms to stimulate the economy.

What Does The Federal Reserve Statement Mean?

Published on August 10, 2011 by

Putting the FOMC statement in plain English

Yesterday the Federal Open Market Committee (FOMC) met and voted to leave the Fed Funds Rate unchanged. This is not surprising but what is surprising and maybe shocking is that the vote was not unanimous, in fact the vote was 7-3. It has been over 10 years since the FOMC has met and had as many as three not agreeing with the majority.

In the notes and press release following the meeting there was a few highlights that showcased how poorly the economy is doing:

  1. Growth would be better if it was at least a “snails pace”
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  3. Labor markets are non existent at this time
  4. Household spending has peaked and may turn down

They also mentioned the housing market is insignificant when you are looking for something positive. The housing market is just another indication that the economy may be sputtering for quite some time and some are saying well into 2013.

There was also talk about inflation, and that it is not really a concern at this time which is another reason why you may see interest rates continue to stay low. So, if you qualify for a loan whether it's a purchase or a refinance then now is a great time. If you don't qualify due to credit it would appear as if you have some time to work on it and still capitalize on the rates.


Fed Is Prepared For Additional Economic Stimulus

Published on July 13, 2011 by

FOMC Minutes June 2011

The Federal Reserve met previously and the Federal Open Market Committee (FOMC) Minutes have been released. There was not a lot of exciting or unexpected news.

FOMC Minutes are published 8 times a year and about 3 weeks after each meeting. The minutes are the official log of what they spoke of and provides economist's with valuable insights to what the Fed has planned.

We all know when the FOMC meets and anxiously wait for the press release after the meeting but the press release is very brief and the Minutes are much more detailed. June's Minutes shared with us the following discussion topics.

  • Economic recovery has been much slower then expected
  • Housing is still in the dumps and foreclosures are limiting construction
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  • Interest rates should remain low for quite some time

One issue that has been somewhat debated is whether or not there would be an additional round of economic stimulus. The members all agreed that it was more likely to add another round due to the poor job creation and unemployment.

Since there was not much surprise in the Minutes there has been very little to no reaction on Wall Street since the Minutes were released. The FOMC will meet again in early August and its more likely then not that they will increase the expectations for another round of stimulus.

So if you were hoping to refinance your loan while the interest rates are low then it would appear as if you have an extended period of time to get qualified which can be difficult with late payments and home values. If you have any questions about refinancing or purchasing a home while rates are so low simply contact a loan officer today. The loan officer will be able to assist you with not cost or obligation.


What Did The Federal Reserve Say and What Does It Mean?

Published on June 22, 2011 by

Putting the FOMC statement in plain English

Yesterday the Federal Open Market Committee (FOMC) kept the Fed Funds Rate unchanged and it remains at a range of 0-.25 percent. Maybe the more significant news is not that they kept it unchanged but that the vote was unanimous at ten to zero.

The FOMC shared with us that the economy is recovering at a slower then expected and frustratingly slow pace. Job creation is slow and today there was the news that unemployment claims were much higher then expected.

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For some reason with all of the negative economic news you continue to have reports that consumers and business spending or investments are increasing.

The big news was that the Feds are planning to end the $600 billion pledge to bond markets on June 30 as well as leave the Fed Funds Rate near zero for quite some time. All of the information released and mortgage interest rates remained mostly unchanged and still easing towards going lower. If you have any questions about how this news may make a difference in your budget simply contact a loan officer. Whether you purchase or refinance your first step should always be to your loan officer.

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Looking at Mortgage Rates This Week: June 13, 2011

Published on June 13, 2011 by

Housing Starts 2009-2011

Interest rates were quite volatile this past week as they started the week continuing the trend of lower rates but by the end of the week the interest rates were higher then the beginning of the week. It’s quite a surprise that interest rates ended higher last week although it has been very uncommon over the past couple of months. Freddie Mac is reporting that mortgage interest rates have dropped .42%. If you aren’t a math wiz or financial guru then the drop by .42% may mean very little to you. To make it easy it equals a monthly savings of $25.24 per $100,000 borrowed.

The economy continues to sputter and although there are many out there saying it is improving there are just as many or more that will be able to argue that things are continuing to get worse. Last week there were two members of the Federal Reserve consisting of the chairman and the president both voicing their frustrations with the recovery.

The economy is weak enough that Ben Bernanke the Chairman of the Federal Reserve has talked of interest rates staying low through the end of the year. The markets on Wall Street also are showing worries and concerns as the Dow Jones Industrial

Economic weakness tends to promote a low mortgage rate environment as equity markets sell off and investors seek safety of principal. Indeed, the Dow Jones Industrial Average fell for the 6th straight week, its longest losing streak since 2002.

There is not a lot of news this week that is really valuable but there are a few items that Wall Street may take some actions and decisions on that include:

  • Tuesday : Producer Price Index, Retail Sales
  • Wednesday : Consumer Price Index
  • Thursday : Housing Starts
  • Friday : Consumer Sentiment

While the number of home sales and the market in general has been very slow and weak, keep in mind that home affordability has never been so high. With the low rates expected through the end of the year perhaps the buying season will extend beyond the summer this year. If you have any questions about what opportunities may be available to you whether you purchase or refinance simply contact a loan officer for a free consultation.

Fed Minutes Indicate Rising Interest Rates Shortly

Published on May 19, 2011 by

FOMC Meeting Minutes

The Feds released their minutes from the recent April meeting. The Federal Open Market Committee (FOMC) released their information and the markets responded immediately by raising rates an eighth of a percent.

The minutes that were released for the previous meeting is not the same thing as the press release that happens right after the meeting. The minutes are much more detailed and leave a lot of language to be interpreted. The press release is very general and vague where the minutes has all the details of the meeting.

Below you will find some of the details of what the FOMC discussed:

  • On inflation : Higher levels are “transitory”; will level-off with commodity prices
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  • On housing : The market remains depressed. “Vacant properties” are harming construction.
  • On stimulus : The Fed will stick to its $600 billion support plan

One of the biggest changes in this meeting as compared to the previous meetings for the past couple of years is the talk of an exit strategy for the support they have provided the market with during this economic and housing crisis. Nothing was determined or agreed upon but the talk is happening and we will likely see some changes in policy in the near future.

Experts are anticipating that there will be a gradual restriction of the economy over the next 12 months. The mortgage interest rates have recently been going lower providing those that did not refinance previously a second chance to get that taken care of. If that may be you simply call a loan officer today for a free consultation. The requirements for a loan have also eased a bit. Currently mortgage interest rates are at their lowest levels of the year thus far.

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What Does The Federal Reserve Statement Mean

Published on April 28, 2011 by

Putting the FOMC statement in plain English

Yesterday the Federal Open Market Committee (FOMC) ended it's third meeting of the year and had an immediate release where they kept the Fed Funds Rate unchanged. The vote among the FOMC was unanimous at 10 – 0 to keep the rate unchanged.

There was notes mentioned in the brief press release, the FOMC noted that the economy is recovering at a moderate pace with labor markets also improving and household spending continues to improve but the housing sector continues to be “depressed”. What does all of this language mean? Simply contact your loan officer and have them explain the trends and volatility in the interest rates right now so you can make an informed decision regarding your interest rate.

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The FOMC mentions inflation and also notes that it's expected. Additionally the FOMC will keep it's $600 billion bond market support package (QE2). The language in the notes from the meeting that were released seem to suggest that there maybe another support package created at the end of the 2nd quarter this year if they think the economy still needs additional support.

The new information didn't cause a change in interest rates like many anticipated it would depending on the language. Interest rates continue to remain volatile and anyone looking to purchase or refinance a home this year would benefit from visiting with a loan officer to make an informed decision.

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Fed Meeting Will Impact Mortgage Rates And Home Affordability

Published on April 26, 2011 by

Fed Funds Rate and Mortgage Rates 1990-2011

Federal Open Market Committee (FOMC) started the third meeting of the year today. The Fed will meet eight times a year and today they start a two-day meeting.

The FOMC is comprised of a 12 person committee within the Federal Reserve. The group is led by the Fed Chairman who is currently Ben Bernanke and they impact the nation's monetary policy greatly. Often times the average consumer will confuse the Fed Funds Rate for what they think the mortgage interest rates should be. The two rates are very different and there is no direct relationship between the two rates.

The difference today between the Fed Funds Rate and the average standard, 30-year fixed rate mortgage is 4.625 percent. This difference continues to increase and decrease on a daily basis. Expect to see some change when the FOMC meeting ends and they release the public statement from the meeting tomorrow.

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Everyone on Wall Street is expecting the FOMC to continue to keep the Fed Funds Rate at it's current target range of 0 – .25 percent which it has been at since December of 2008. The number is not always as important since it doesn't move too quickly. Often times the wording used surrounding the rate will have great impact on what interest rates do.

The language may include information talking more of inflation and economic growth which will be bad for interest rates but on the flip side if they withdraw the existing $600 billion bond market stimulus you will see rates fall.

Often times the hard part of buying a home is simply making adjustments according to the interest rates since they are so volatile. The rates greatly impact your purchasing power and monthly budget. If you have any questions you should reach out to your loan officer and make sure you are informed to make the best decisions going forward.