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FOMC Holds Federal Funds Rate Steady

FOMC Holds Federal Funds Rate Steady

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

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.  One of the key tools that the Federal Reserve uses to control monetary policy is the Federal Funds Rate.  In short, the Federal Funds Rate is the interest rate that banks pay when they borrow money from each other overnight to make sure they have enough money in reserve.  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 interest rates and the higher the Federal Funds Rate, the higher mortgage interest rates.  The Federal Open Market Committee (FOMC) is the policy-making unit of the Federal Reserve that 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 interest 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.  Analysts and industry experts dissect the FOMC statements for clues about what direction the Federal Reserve will take with monetary policy and interest rates in the future.  The addition or subtraction of a single word in an FOMC announcement can have a significant impact on the financial markets and mortgage interest rates.

In its most recent FOMC announcement released on September 17th, the Federal Reserve left the target Federal Funds Rate unchanged at 0 to .25%.  The FOMC statement also indicated that the Federal Reserve will likely maintain the current low target Federal Funds Rate for “a considerable time” which means that the target rate is likely to remain at its current level for several months, barring any significant economic developments.  The FOMC’s decision to maintain the current Federal Funds Rate did not come as a surprise to industry analysts although the specific language contained in the FOMC statement eased some concerns that the Federal Reserve was becoming more inclined to raise interest rates sooner than previously anticipated.

What it Means for Borrowers

The FOMC’s decision to hold the target Federal Funds Rate constant and its use of relatively cautious language about not raising interest rates for “a considerable time” had a steadying effect on mortgage interest rates, which had begun to increase slightly over the past couple of weeks.  Mortgage rates remain at historical lows and the FOMC announcement suggests that interest rates will remain relatively flat for several months meaning that it continues to be a good time to buy a home or refinance your mortgage.  Check out the COMPARE LENDERS feature on FREEandCLEAR to review interest rates from lenders in your area and keep checking our blog for the latest mortgage news.

The FREEandCLEAR Mortgage Expert

www.freeandclear.com

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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