We've had many questions about what is happening with current mortgage rates and how recent government changes will effect closings, refinancing and rate locks. The following article was shared by Stacy Holland with New American Funding in Navarre, FL and we found it to be a great source of information if you need to make sense of the current mortgage situation.
Here’s what you need to know.
The Federal Reserve does not control mortgage rates
It’s a common belief that the Federal Reserve “makes” consumer mortgage rates. In fact, it doesn’t. Mortgage rates are made on Wall Street.
The Federal Reserve has no direct connection to U.S. mortgage rates whatsoever.
That said, the Fed does exert an influence on today’s mortgage rates.
When the economic outlook is generally “positive,” mortgage rates tend to rise. When the outlook is “negative,” rates tend to fall.
Lately, the Fed has shown a mix of positive and negative sentiment.
The group has acknowledged that the U.S. economy is improving, but that growth obstacles remain. It has also said that inflation rates remain stubbornly low, which is a concern as well.
The fed funds rate, and how it affects you
The fed funds rate is the prescribed rate at which banks lend money to each other on an overnight basis.
When the fed funds rate is low, the Fed is attempting to promote economic growth. This is because the fed funds rate is correlated to Prime Rate, which is the basis of most bank lending including many business loans and consumer credit cards.
For the Federal Reserve, manipulating the fed funds rate is one way to manage its dual-charter of fostering maximum employment and maintaining stable prices.
Dan Green, The Mortgage Reports Contributor
March 3, 2020
