Thoughts on Mortgage Rates in a Fed Week

Fed Week!  The Federal Open Market Committee begins a 2-day meeting today, its fourth scheduled meeting of the year, and fifth overall.

These are typically among the more volatile weeks of the year and this week should be no different.

The Fed Funds Rate has been in a target range of 0.00-0.25% since December 16, 2008.   This is the lowest in history.  A lower Fed Funds Rate creates cheaper borrowing for businesses and consumers and, in turn, should theoretically promote investment and growth.

There almost zero expectation that the Fed will change the Fed Funds Rate tomorrow when the meeting adjourns, but that does not mean that we’re forecasting mortgage rates to remain unchanged.

Actually, it is pretty safe to say that mortgage rates will change tomorrow afternoon.  This is because the FOMC issues a press release after each meeting and in that press release, it comments on the economy’s unique threats, strengths and weaknesses.

When the FOMC speaks, Wall Street listens.  Wall Street also reads between the lines and looks for the next big trade.  The words before and after “jobs,” “inflation,” and “growth” will move the market.  The question is simply which way they’ll move.

What we’re seeing now is sort of an interesting twist where mortgage rates don’t necessarily drop even on these recent days when mortgage bonds would normally indicate they’d drop.  In essence, rates have effectively hit the floor.  Even with mortgage-friendly news hitting the wires, rates just aren’t going much lower.  Conversely, even a hint of economic expansion could send them up .5% in an afternoon.  That wouldn’t be unprecedented.

We can’t know for sure what the Fed will say or do tomorrow afternoon so if you’re floating a mortgage rate and wondering whether to lock, the safe choice is to lock prior to 1:15 CDT tomorrow.