In Washington, D.C. today, the Federal Open Market Committee (FOMC) begins a
2-day meeting, its fifth of 8
scheduled meetings this year.
Mortgage rates are expected to change upon the FOMC's adjournment. Rate
shoppers and home buyers of Minneapolis would do well to be alert.
The Federal Open Market Committee is a rotating 12-person subcommittee within
the Federal Reserve. It's the group which makes U.S. monetary policy.
"Making monetary policy" has many meanings but the action for which the FOMC
is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is
the prescribed interest rate at which banks borrow money from each other
overnight.
Since late-2008, the Fed Funds Rate has been near zero percent.
The Fed Funds Rate and Freddie Mac's 30-year fixed rate mortgage rate move
along different paths. Sometimes, the two converge. Other times, they diverge.
They've been separated by as much as 529 basis points in the past 12 years, and
they've have been as near to each other as 52 basis points.
Clearly, there's no correlation between the Fed's Fed Funds Rate and the
common 30-year mortgage. However, with its words, the Federal Reserve can
influence the direction in which mortgage rates move -- on occasion, by
a lot.
We'll be witness to this Wednesday.
When the FOMC adjourns, it is expected to announce no change in the Fed Funds
Rate. Yet, based on the verbiage of the post-meeting statement, mortgage rates
will rise or fall accordingly. If the Fed notes that the economy is sagging and
that new stimulus is planned, mortgage rates are expected to drop throughout
Minnesota. This is because new, Fed-led stimulus would be a boon for mortgage
markets which would, in turn, drive mortgage rates down.
Conversely, if the Fed acknowledges growth in the U.S. economy and/or little
need for new stimulus, mortgage rates are expected to rise.
Either way, expect rates to change -- we just can't know in what direction.
The FOMC adjourns at 2:15 PM Wednesday.