The Federal Reserve ends a scheduled, 2-day meeting today. It’s the seventh of 8 scheduled Fed meetings in 2010, and the eighth overall this year.
The Fed held an unscheduled meeting May 9, 2010.
When today’s meeting adjourns, Fed Chairman Ben Bernanke & Co. will publish a formal statement within which the Fed is expected to announce “no change” to the Fed Funds Rate. But that doesn’t mean that mortgage rates won’t change.
To the contrary, expect mortgage rates to move by a lot this afternoon. Here’s why.
The Fed’s mission is to preserve stability within banking and the economy and, to achieve that goal, the Fed was bequeathed a number of powers by the U.S. government.
The most well-known of those powers is to right to set the Fed Funds Rate, the rate at which banks lend money to each other overnight.
Since December 2008, the benchmark Fed Funds Rate has been held in a range of 0.000-0.250 percent, the lowest possible range without going negative.
Now, when the Fed Funds Rate is low, it’s meant to loosen credit; to push the economy forward. And, by all accounts, the near-zero Fed Funds Rate is working. The recession ended and the economy is recovering.
However, the Fed has other stimulus-providing tools at its disposal and Wall Street expects the group to use them. This is where mortgage rates come into play.
Investors think the Fed will announce a new stimulus in its press release this afternoon and, dependent on the size of package, mortgage rates in California will either rise, or fall.
- If the package is worth more than $500 billion, rates are expected to fall
- If the package is worth less than $250 billion, rates are expected to rise
If the stimulus is somewhere in between, rates should idle.
Predicting mortgage rates is an inexact science, and guessing the Fed even moreso. Therefore, if you’re shopping for a mortgage rate right now, the prudent move is to lock it up prior to today’s 2:15 PM ET adjournment because, after to 2:15 PM ET, we can count on the Fed Funds Rate staying flat, but the same can’t be said for mortgage rates.
Call your loan officer this morning.
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