FOMC statementThe Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the Federal Funds Rate within its current range of zero to 0.25 percent, and to continue its current stimulus program of purchasing $85 billion monthly in Treasury bonds and mortgage-backed securities (MBS).

Citing weather-related events such as Hurricane Sandy and drought in the Midwest, the committee said in its statement that information received since its December 2012 meeting “suggests that growth in economic activity has paused in recent months in large part because of weather-related disruptions and other transitory factors.”

Concerns over the then-looming fiscal cliff crisis may have also contributed to the economic contraction during the last quarter of 2012. Positive economic trends observed by the Fed included:

  • Improved household spending
  • Improving housing markets
  • Growth in business fixed investments

The Fed initiated its third round of quantitative easing (QE3) in September as part of an ongoing effort to hold down interest rates and to encourage business spending. The benchmark Federal Funds Rate will remain between zero and.0.25 percent until the unemployment rate falls to 6.5 percent and provided that inflation remains stable.

The Fed Funds Rate has stayed near zero since December 2008.

The national unemployment rate was 7.8 percent in December, and Wall Street expects it to be 7.7 percent for January. The Department of Labor will release its monthly jobs report on Friday; this report includes the monthly unemployment rate. Inflation is expected to remain at or below the Fed’s target level of 2.0 percent or less for the medium-term.

While noting that “strains on global financial markets have eased somewhat,” the FOMC said that it “continues to see downside risks to the economic outlook.” Low overall interest rates and gradual inflation work in favor of home buyers as home prices and mortgage rates are likely to rise at a gradual pace.

Mortgage rates in Richmond improved slightly after the FOMC release.

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Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the tenth consecutive meeting, the FOMC vote was nearly unanimous. Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008.

In its press release, the Federal Reserve noted that, since its last meeting in late-October, the U.S. economy has expanded “at a moderate pace” despite “weather-related disruptions”. It also acknowledged that “strains in global financial markets” remain a threat to U.S. economic growth.

This comment is in direct reference to the Eurozone, its sovereign debt concerns, and its nation’s economies.

The Fed included the following observations in its statement, too :

  1. Growth in employment is expanding but unemployment is elevated
  2. Inflation pressures are stable, and below the Fed’s target range of 2%
  3. Business spending on equipment and structures has slowed

In addressing the housing market, the Fed said that there has been “further signs” of improvement and the group re-affirmed its commitment to the $40-billion monthly QE3 bond buying program.

QE3 is meant to suppress U.S. mortgage rates from rising too high, too quickly.

Lastly, the Federal Reserve announced an explicit economic target for when it will begin to consider raising the Fed Funds Rate from its current target range near 0.000%. When the national Unemployment Rate reaches 6.5%, the Fed said, it will likely move to start raising its benchmark borrowing rate. 

Previously, the Fed had provided only a date-based target of mid-2015.

The 6.5% Unemployment Rate target may be pre-empted by rising inflation rates. The Fed does not expect price pressures to mount prior to jobless rates dropping from the current 7.7% levels, however.

Mortgage rates in Henrico are rising post-FOMC announcement. Many lenders raised mortgage rates mid-day Wednesday in response to the Fed’s statement. 

The FOMC’s next scheduled meeting is a two-day event scheduled for January 29-30, 2013.

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Fed Funds RateThe Federal Open Market Committee (FOMC) begins a 2-day meeting today, its last of 8 scheduled meetings this year.

The Federal Open Market Committee is a 12-person subcommittee within the Federal Reserve. It’s the group which votes upon U.S. monetary policy. 

The monetary policy action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight.

Since late-2008, the Fed Funds Rate has been near zero percent.

Prime Rate, a business and consumer interest rate used in lines of credit and credit card rates, is based on the Fed Funds Rate. Prime Rate has been similarly unchanged since 2008.

One rate which the Federal Reserve does not set is the 30-year fixed rate mortgage (FRM) rate.

Like all other mortgage rates, the 30-year FRM is based on the market value of mortgage-backed bonds; securities bought and sold by investors.

There is no correlation between the Federal Reserve’s Fed Funds Rate and the everyday homeowner’s 30-year fixed rate mortgage rate. Some months, the two rates converge. Other months, they diverge. Since 2000, they’ve been separated by as many as 5.29 percentage points.

They’ve been as close as 0.52 percentage points.

However, although the Federal Reserve does not set U.S. mortgage rates, that doesn’t mean that it can’t influence them. The Fed’s post-meeting press release has been known to make mortgage rates get volatile.

If, in its post-meeting press release, the Fed notes that the U.S. economy is slowing and that new economic stimulus is warranted, mortgage rates will likely fall throughout Virginia. This is because additional Fed stimulus would likely lend support to U.S. mortgage markets which would, in turn, boost demand for mortgage-backed bonds.

Conversely, if the Fed acknowledges stronger-than-expected growth in the U.S. economy and no need for new stimulus, mortgage rates are expected to rise.

Either way, mortgage rates will change Wednesday upon the FOMC’s adjournment — we just don’t know in which direction. Rate shoppers may see fluctuations of as much as 0.250 percent.

The FOMC adjourns at 12:30 PM ET.

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Is more Fed stimulus in store for 2013?The Federal Reserve released its October Federal Open Market Committee (FOMC) meeting minutes last week, revealing a Fed in disagreement about the future of the U.S. economy and about what, if any, stimulus may be warranted in the next 12 months.

The “Fed Minutes” recaps the conversations and debates that transpire during an FOMC meeting, and is published 3 weeks after the meeting adjourns. 

According to the October minutes, FOMC members “generally agreed” that a housing recovery is under way nationwide, citing increased housing prices, higher sales volume, and rising construction in many parts of the country.

FOMC members made no major policy changes at their last meeting, but agreed that a continuation of additional asset purchases would likely be necessary in 2013, in order to achieve a substantial improvement in the labor market.

Other notes from within the Fed Minutes included:

  • On housing: Signs of improvement are “encouraging”, and mortgage rates are at historic lows
  • On inflation: Essentially “unchanged”, notwithstanding recent increases in energy prices
  • On Europe: Production indicators signal contraction in business activity and expansion
  • On employment: Employment is rising, and unemployment remains high

The economic forecast prepared by the FOMC staff shows an uptick in consumer spending, residential construction, and labor market conditions which more than offset recent downgrades in the business fixed investment and the industrial production outlooks.

Through 2013, economic activity is projected to accelerate gradually, supported by a lessening in fiscal policy restraints. The Fed also anticipates that Richmond home buyers will benefit from looser credit standards.

Low mortgage rates are helping home buyers, too.

According to Freddie Mac, the average 30-year fixed rate mortgage rate was 3.34% last week, down from 3.55% in September. This has given a boost to buyer purchasing power nationwide and the year-end housing market may reflect it. Demand for homes remains strong.

The next FOMC meeting is scheduled for December 11-12, 2012.

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Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the ninth consecutive meeting, the vote was nearly unanimous. And, also for the ninth consecutive meeting, Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008.

In its press release, the Federal Reserve noted that, since its last meeting six weeks ago, the U.S. economy has been expanding “at a moderate pace”, led by growth in household spending. However, “strains in global financial markets” continue to remain threat to U.S. economic growth, a comment which references to the Eurozone and its economy.

The Fed’s statement also included the following economic observations :

  1. Growth in employment has been slow; unemployment is elevated
  2. Inflation pressures remains stable, and below 2%
  3. Business spending on equipment and structures has slowed

In addition, the Fed addressed the housing market, stating that there have been “further signs” of improvement, “albeit from a depressed level”.

Finally, the Federal Reserve re-affirmed its commitment to its most recent stimulus program, a bond-buying program known as QE3.

Via QE3, the Federal Reserve has been purchasing $40 billion in mortgage-backed bonds monthly, with no defined “end date”. QE3 is meant to suppress U.S. mortgage rates.

Fed Chairman Ben Bernanke has said that QE3 will remain in place until the U.S. economy has recovered in full, at least. It’s a plan that may help home buyers in Virginia and nationwide. Since QE3 launched, mortgage rates have moved to new all-time lows.

The Fed also used its meeting to announce that it intends to hold the Fed Funds Rate near its target range of 0.000-0.250 percent until mid-2015, at least.

The FOMC’s next scheduled meeting is a two-day event and its last of the year, December 11-12, 2012.

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Fed Minutes September 2012The minutes from the Federal Reserve’s September Federal Open Market Committee meeting were released Thursday.

The Fed Minutes detail the discussions and debates which shaped the central banker’s launch of its third round of qualitative easing since 2008. The minutes also give Wall Street insight into future monetary policy.

At 6,987 words, the Fed Minutes provides a level of detail that was unavailable via the FOMC’s post-meeting press release, a documen that, by contrast, ran 562 words.

Despite its large word count, there was very little that was new or surprising in the Fed Minutes, though. This is because, since the Fed’s last meeting, Federal Reserve Chairman Ben Bernanke has publicly clarified and re-iterated the Fed’s positions on employment, housing and inflation.

The minutes provide a strong backdrop to his comments, however.

For example, with respect to the jobs market, Fed members deemed employment “disappointing”, noting that growth in payrolls has been slower in 2012 as compared to 2011, and that the expansion rate of today’s job market is too slow to make significant progress against the national unemployment rate.

The Fed Minutes also included the following notes :

  • On housing : Further improvement is occurring, albeit from a “depressed level”
  • On inflation : Risks appear “tilted to the downside”, but energy costs pose risks
  • On Europe : A “slight improvement”, but still a risk to global economic activity

Of greatest interest to home buyers in Henrico and rate-shopping refinancers, though, was the Fed’s discussion of its QE3 program. The program was introduced to help suppress mortgage rates nationwide which, the Fed believes, will make “broader financial conditions” more accommodative.

The Fed plans to purchase $40 billion in mortgage-backed bonds monthly for a “considerable” period of time after the U.S. economy has already shown signs of full recovery and, since the launch of QE3, 30-year fixed rate mortgage rates are down 19 basis points to 3.36% nationwide, on average.

The next Federal Open Market Committee meeting is scheduled for October 23-24, 2012. 

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Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Thursday. For the eighth consecutive meeting, the vote was nearly unanimous.

Just one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. 

In its press release, the Federal Reserve noted that the U.S. economy has been expanding “at a moderate pace” in recent months, led by growth in household spending. However, “strains in global financial markets” remain a significant threat to growth in the near-term, a remark made in reference to the Eurozone and its sovereign debt and recession issues.

The Fed’s statement also included the following economic observations :

  1. Growth in employment has been slow with unemployment elevated
  2. Inflation has been subdued, despite rising gas and oil prices
  3. Business spending on equipment and structures has slowed

In addition, the Fed addressed the housing market, stating that there have been signs of improvement, “albeit from a depressed level”.

The biggest news to come out of the FOMC meeting, though, was the launch of the Fed’s third round of quantitative easing (QE3).

QE3 is a program by which the Federal Reserve will purchase $40 billion in mortgage-backed bonds monthly, with no defined “end date” for the program. So long as the Fed believes that the market needs support, it will keep QE3 in place.

In the near-term, QE3 is good for Henrico rate shoppers and home buyers. With the Fed in line to buy $40 billion in mortgage bonds each month, demand for bonds is expected to remain strong which, all things equal, leads mortgage rates lower.

We’re seeing this already today. Mortgage pricing is improving post-FOMC, with rates nearing their lowest levels of the week.

The Fed also used its meeting to announce that it intends to hold the Fed Funds Rate near its target range of 0.000-0.250 percent until mid-2015, at least. At its last meeting, the Fed has marked an end-date of “late-2014”.

The FOMC’s next scheduled meeting is a two-day event, October 23-24, 2012.

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FFR vs 30-year FRM

The Federal Open Market Committee ends a 2-day meeting today, the group’s sixth of 8 scheduled meetings this year. As a Henrico home buyer or would-be refinancer, be ready for mortgage rates to change.

The Federal Open Market Committee is a 12-person sub-committee of the Federal Reserve. Led by Fed Chairman Ben Bernanke, it’s the group within the Fed tasked with voting on U.S. monetary policy.

The act for which the FOMC is most well-known is its management of the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight. It’s one of several interest rates under Federal Reserve management.

“Mortgage rates”, however, is not among them.

The Federal Reserve does not set or make mortgage rates — Wall Street does. Further, there is no historical correlation between the Fed Funds Rate and the average conforming 30-year fixed rate mortgage rate. At times, the two benchmark rates move in the same direction. Other times, they diverge.

They’ve been apart by as much as 5.29 percent, and have been as near as 0.52 percent.

Today, the spread between the Fed Funds Rate and the 30-year fixed rate mortgage rate is roughly 3.34%. That will change beginning at 12:30 PM ET today. This is the time at which the FOMC adjourns and releases its public statement to the markets.

The FOMC is expected to announce no change in the Fed Funds Rate, leaving it within its current target range of 0.000-0.250%. How mortgage rates throughout Virginia respond to the Fed, though, will depend on whether the nation’s central banker adds new market stimulus in the form of a third round of quantitative easing.

If the Fed adds new stimulus and it’s deemed large enough to be propel the economy ahead, stock markets will gain and bond markets should, too. This would lead mortgage rates lower. Conversely, if the size of the stimulus is deemed too small to be effective, mortgage rates will rise. Maybe by a lot.

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Fed minutes August 2012Eariler this week, the Federal Reserve released the minutes from its 2-day meeting which ended August 1, 2012. Since the release, mortgage rates have dropped.

The Fed Minutes are released on a schedule, three weeks after the FOMC adjourns from one of its 8 scheduled meetings of the year.

The Fed Minutes are meeting minutes; like you’d see after a corporation shareholder meeting, or after a condo board meeting. Specifically, the Fed Minutes details the conversations among Federal Reserve members which shape our nation’s economic policy.

The most recent Fed Minutes show a central bank closer to adding new market stimulus that previously believed.

At its last meeting, the Federal Reserve’s debate focused on the rate of economic growth and whether it was occurring too slowly to be long-lasting. The Fed appears to think so. Without a “substantial and sustainable strengthening” in the pace of economic expansion, it said, additional monetary stimulus would be “warranted fairly soon”.

Other notes from within the Fed Minutes included :

  • On employment : Unemployment rates will “decline only slowly”
  • On housing : The market appears “to have improved, somewhat”
  • On inflation : Retail energy costs are keeping consumer prices low

However, the Fed expressed an “unusually high level of uncertainty” about its assessments owing to the ongoing European sovereign debt problems. “Spillovers” remain possible and default threats continue to weigh on markets. 

The Federal Reserve’s next scheduled meeting is September 12-13, 2012.

Since the minutes were released — and for the first time this month — mortgage rates in Virginia made a big move lower. This is in contrast to the rest of August through which mortgage rates have climbed steadily.

According to Freddie Mac, on August 1, the average 30-year fixed rate mortgage rate was 3.49% nationwide. Today, the rate is 3.66%. Between now and the Fed’s next policy-making meeting September 13, though, mortgage rates are subject to change. If today’s mortgage rates fit your budget, consider locking in. 

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Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday. The vote was nearly unanimous.

Only one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. 

In its press release, the Federal Reserve noted that the U.S. economy has “decelerated somewhat” since January. Beyond the next few quarters, though, the Fed expects growth to “remain moderate” and then gradually pick up.

There was no mention of strain in global financial markets and its threat to the U.S. economy, as the Fed had made in its last two post-meeting press releases.

The Fed’s statement also included the following observations about the economy :

  1. Household spending is “rising at a somewhat slower pace”
  2. Inflation has declined, mostly on lower oil and gas prices
  3. Unemployment rates remain “elevated”

Furthermore, the Fed addressed the housing market, stating that, despite signs of improvement, the sector overall remains “depressed”.

The biggest news to come out of the FOMC meeting, though, was that there was no news.

First, the Federal Reserve is leaving its “Operation Twist” program in place. Operation Twist sells shorter-term securities off the Federal Reserve’s balance sheet, using the proceeds to purchase longer-term securities. This move puts “downward pressure on longer-term interest rates” and makes “broader financial conditions more accommodative.”

Second, the Fed re-iterated its pledged to keep the Fed Funds Rate at “exceptionally low” levels at least through late-2014.

And, third, to Wall Street’s surprise, there was no announcement of a third round of quantitative easing, a market stimulus plan by which the Federal Reserve buys U.S. treasuries and mortgage-backed bonds on the open market. QE3 would have likely led mortgage rates lower.

The FOMC’s next scheduled meeting is a two-day event slated for September 12-13, 2012.

Mortgage markets are rising post-FOMC.

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