Today the Federal Reserve Board announced they will not be raising the federal funds rate. The rate will remain at zero to .25 percent. More importantly to the mortgage rate market they announced that they will extend the purchase of mortgage backed securities (MBS) until the end of the year through March 2010.
The implementation of MBS purchases by the Feds on November 26, 2008 has helped mortgage rates remain historically low for nearly a year. The low rates have been a healthy companion to the first time homebuyer tax credit in 2009. These two government sponsored tools explain the increase in housing activity this year.
The good news for now: there is still time to make an offer and qualify for the first time homebuyer tax credit and rates will likely remain low as long as the government is throwing $10-$20 billion, yes billion, a week to the MBS market.
As always, if you have questions about current rates or a scenario, give me a call or shoot me an email.
Today Federal Reserve Chairman Ben Bernanke share with Congress his concerns for the economy that continues to see a slow down. Despite the recent movements by the Bush Administration and the global efforts of the world’s central banks, the US Economy is still continuing retract. The financial and credit markets continue to show daily uncertainty.
The Federal Reserve has left the door open for another rate cut during its meeting on October 28-29. Bernanke believes stimulus provided by monetary policy along with stabilization of the housing and credit markets will help the economy set a strong foundation.
Bernanke proposed an additional stimulus package that could total anywhere from $150-300 Billion.
“If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers,” Bernanke said. “Such actions might be particularly effective at promoting economic growth and job creation,” he added.
Passage of an additional sitmulus package prior to election seems unlikely, however, the direction of the economy will deterimine how Congress will act.
Today the Federal Open Market Committee unexpectedly lowered the federal funds rate by 50 basis points (.5%) to 1.5%. Several central banks from around the globe also reduced funds rates by 50 basis points in an effort to restore some confidence in the markets. The prime interest rate will be reduced to 4.5%.
The FOMC acted fiercely with this cut due to evidence pointing to weakening economic activity and a reduction in inflationary pressures. The financial turmoil and perceived unavailability of credit has caused spending to decrease significantly. The FOMC hopes the reduction will encourage spending and expects the decline in energy and other commodity costs will reduce the upside risks to inflation.
