FOMC Meets - Are Mortgage Rates and CD Rates Headed Up?

The Federal Open Market Committee meets today and tomorrow to decide the future direction of monetary policy and interest rates. The decision they make will affect current mortgage rates and deposits like CD rates.

Although the Fed is expected to keep interest rates in the targeted range of between zero percent and one quarter percent everyone is waiting to see what is said about the economy and the future.

The preliminary second quarter GDP number came in last week showing the economy only contracted one percent, a big improvement over the 6.4 percent contraction in the first quarter of 2009. Third quarter GDP is expected to show an expansion again of one to two percent and an expansion of two to three percent for the second half of 2009. If those estimates are correct the worst recession since the 1930s will have ended.

Once the economy starts expanding again and the unemployment rate goes down considerably from the current rate of 9.4 percent the Fed will raise interest rates to keep a lid on inflation. Tightening monetary policy by raising interest rates probably won’t happen until late 2009 or early 2010.

That being said, if you’re thinking about getting a mortgage for a home purchase or refinancing a current mortgage you should act sooner than later. Also, if you are considering opening a certificate of deposit or renewing a certificate that is maturing I would recommend sticking with shorter term certificates of deposits for the foreseeable future.