Archive for Federal Reserve

Breaking Down The Federal Reserve Statement (January 2013 Edition)

Posted in Federal Reserve by Michigan Real Estate Expert on January 31st, 2013

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 Bloomfield Hills improved slightly after the FOMC release.

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Simple Explanation Of The Federal Reserve Statement (December 12 , 2012)

Posted in Federal Reserve by Michigan Real Estate Expert on December 12th, 2012

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 Royal Oak 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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The Federal Reserve Begins A 2-Day Meeting Today

Posted in Federal Reserve by Michigan Real Estate Expert on December 11th, 2012

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 Michigan. 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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Federal Reserve : New Economic Stimulus May Be Warranted

Posted in Federal Reserve by Michigan Real Estate Expert on November 19th, 2012

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 Royal Oak 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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