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. 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 June 17th, the Federal Reserve left the target Federal Funds Rate unchanged at 0% to .25%. The FOMC remains focused on inflation, employment and overall economic growth and noted improvements in these areas but room for further improvement going forward. There were no major surprises coming out of the FOMC announcement and interest rates remained relatively unchanged following its release. The language used in the announcement is consistent with expectations that the Federal Reserve will raise interest rates later in 2015 although the announcement provided no indication of specific timing. 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
The FOMC announcement did nothing to change the opinion that the Federal Reserve will increase interest rates some time in 2015 and the gradual increase in mortgage rates over the past two months is in anticipation of an eventual hike in rates. A sudden change in economic conditions such as jump in the unemployment rate or drop in productivity could cause the FOMC to change course but borrowers should expect mortgage rates to increase by the end of 2015. It is important to remember that in addition to Federal Reserve policy, there are multiple factors that determine mortgage rates. It is impossible to predict interest rates but it is more likely than less that mortgage rates will increase in the future so if you are considering buying a home or refinancing, now is likely a good time to start the process. Use the INTEREST RATES feature on FREEandCLEAR to keep track of mortgage rates for lenders in your area and check-in with FREEandCLEAR for the latest developments in the mortgage market.
The FREEandCLEAR Mortgage Expert