The Federal Reserve determines monetary policy in the United States, and monetary policy, in turn, is one of the most important factors in determining mortgage interest rates. So when the Federal Reserve speaks, FREEandCLEAR listens closely and passes along our insights to the the FREEandCLEAR community. The Federal Reserve sets a target for the Federal Funds Rate which influences other interest rates, including mortgage interest rates. Although there are other factors involved, the lower the Federal Funds Rate, the lower mortgage rates and the higher the Federal Funds Rate, the higher mortgage rates. The Federal Open Market Committee (FOMC) is responsible for determining the Federal Funds Rate and meets eight times a year to discuss what the target rate should be. After every meeting, the FOMC releases a policy statement that discusses the target Federal Funds Rate as well as other monetary policy and economic issues. The FOMC announcement can have a significant impact on mortgage rates depending on if the FOMC changes the target Federal Funds Rate and the language the statement uses to discuss monetary policy and the economy.
In its most recent FOMC announcement released on July 29th, the Federal Reserve left the target Federal Funds Rate unchanged at 0% to .25%. The FOMC highlighted improvements in employment but also pointed out continued challenges in household spending and business investment. FOMC members review a wide range of economic statistics and indicators but is broadly focused on promoting low unemployment and maintaining reasonable inflation. There were no significant changes or surprises included in the FOMC announcement and mortgage rates dipped slightly following its release. Following the announcement most industry analysts affirmed their expectations that the FOMC will raise interest rates in either September or December of 2015. No members of the FOMC offered their dissent in the statement which indicates that the committee is generally unanimous on its interest rate policy.
What it Means for Borrowers
In short, the July FOMC announcement proved to be a non-event. With no changes to the target Federal Funds Rate and very few changes to the language used by the FOMC to communicate interest rate policy, mortgage rates remained relatively unchanged following the announcement and have actually declined moderately over the past month. Despite the lack of market reaction the FOMC appears on track to raise the target Funds Rate by the end of 2015. FREEandCLEAR will be watching the September FOMC meeting closely as most analysts predict that this is the soonest the Federal Reserve would consider raising interest rates. You can keep a close eye on mortgage rates for lenders in your area using the INTEREST RATES feature on FREEandCLEAR.
The FREEandCLEAR Mortgage Expert