The Federal Reserve released a new policy announcement today. This is one of the eight times a year the Fed can decide to change “Interest Rates” or adjust its other policies that affect “Interest Rates”. Fed Announcement Days have a track record as some of the best (or worst) Days for mortgage interest. That is, they can be complete meaningless also, and that’s the label we would choose for today’s version (if we could only choose one).
Is it true that the Fed kept rates unchanged at 0-0.25%? YesIt is important to understand, however, that this is referring to the Fed Funds Rate – a target rate for overnight inter-bank loans. Mortgage rates can loose correlate with the Fed Funds rate over very long time horizons, but they often move in the opposite direction. More importantly, mortgage rates are constantly changing, while the Fed Funds rate has not changed in more than a year (and typically can only change once every 6 weeks, except in exceptional circumstances).
So Why In the past, have mortgage rates had a big reaction to the Fed when the Fed Funds rate didn’t have a big impact on mortgage rates?
Simply put: In addition to announcing the Fed Funds Rate, the Fed is doing “other things”. This is just the part of the announcement that the news outlets tend to lead with. Mortgage rates are far more interested in the Fed’s bond purchase programs, which include $ 40 billion a month for buying new mortgage bonds (in addition to reinvesting proceeds from previous mortgage bond purchases). On this issue, the Fed remained stable, indicating that we are still a long way from a situation where bond purchases would taper.
While this was not really new to anyone who had adjusted to the recent Fed comments, bonds and mortgage rates were nonetheless slightly relieved to be confirmed. Especially after the start of the day in only slightly weaker Territory began mortgage lenders fall Prices again in line with yesterday’s level. None of the above changes are a big change. However, if we want to discuss interest rate moves over the past 24 hours in the context of the Fed, this is the only way to do it.