The Federal Open Market Committee adjourns from a two-day meeting today and so this is a good time to remind yourself: The Fed does not control mortgage rates.
Rather, the Fed sets the Federal Funds Rate.
And the FFR is, in turn, used to determine Prime Rate.
Prime Rate, in turn, is used to determine the rates for credit cards, charge cards and home equity lines of credit.
This is why today’s meeting should be important to holders of debt — the Fed’s decision to lower, raise or hold the FFR at its current level can impact the spending of every American household.
The Fed is widely expected to hold the Fed Funds Rate steady today, but Ben Bernanke & Co will issue a press release discussing the group’s view on the economy and the outlooks for the future.
It is the statement that has the biggest influence over mortgage rates. If the FOMC expresses concerns about inflation, mortgage rates should jump in response. Naturally, the reverse is true.
Yesterday, after starting the day with strong improvement, mortgage bonds gave up their gains to end the day flat. Today, bonds are already trending lower (which means higher mortgage rates).
One thing is for sure: there is a lot of uncertainty surrounding today’s press release and traders are unsure of what bets to make next.
(Image courtesy: Wall Street Journal)