The Fed Meets This Week
One of the main concerns Nations Lending clients have when refinancing or purchasing a home is what their interest rate is going to be, because the rate affects disposable income and liability. But whether it is a single borrower or a country, the interest rate determines the outflow of money to a bank or other lending entities.
Usually the economy, interest rates and mortgage rates work in harmony together, with the U.S. Federal Reserve having an impact on each of these as the Federal Reserve’s policies are based on the economic situation in the U.S. The Federal Open Market Committee (FOMC) meets this week, as it does periodically throughout the year, and assesses the national economic well-being based upon research and data analysis. The information provided helps the Fed decide whether or not to raise rates.
When the Federal Reserve keeps the federal funds rate low, as it is expected to do this week, borrowing is cheap for people and businesses. This has a positive impact on the economy as consumers are more inclined to borrow and spend. There is plenty of talk, however, of short terms rates moving higher in June or September. The change in the fed funds rate is conveyed through the Open Market Operations (OMOs) which buy or sell securities thus putting cash into the economy.
And although the Fed does not set long term rates, Nations Lending originators know that Treasury yields also impact fixed mortgage rates and as the yields rise, these products must offer higher returns in order to draw investors. If yields decline, mortgage rates begin to drop as well. In order to try and get the best rate, it would be wise to track the direction the fixed mortgage rate is headed, look for the Federal Reserve’s economic statement on Wednesday. Fortunately it is not expected to announce any increases – this time.