The Federal Open Market Committee met this week and released their new policy statement. They are concerned about the economy and so they are going to keep Fed Funds rates at the current rate of 0.00-0.25%. They also announced that they are going to reinvest principal payments from agency debt and agency mortgage-backed securities in long term Treasury securities.
What that means to us is that interest rates, including mortgage rates, are likely to stay at these very low levels for a while. That is not a guarantee, but the intent of the Fed!
The Fed said in it's press release that economic growth has slowed since June. Household spending is increasing but remains restrained because of high levels of unemployment, falling home values and restrictive credit. They also highlighted strengths in the economy – low inflation, business spending and growth is ongoing on a national level.
The Federal Reserve doesn't set mortgage rates, but sets the Federal Funds Rate that is an overnight rate that banks use to lend money to each other over night. When the Fed rate is high, the banks pay a lot of interest on that money and are less inclined to borrow from each other. When the rate is low, borrowing is cheap and it is suppose to spur the economy. The Fed Funds rate is tied to the Prime rate which is the basis for business and consumer borrowing.
The bottom line to all of this is that mortgage rates should stay low for an extended period of time which may help those that are looking to buy a new home or refinance their current home! However – no one knows for sure how long this will last!! We do know that it won't last forever!!
