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FOMC Statement Points to Continued Moderate Growth and Low Interest Rates

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Since the "Great Recession" economic growth as been slow and interest rates have remained low. The FOMC has kept the Fed funds rate in a targeted range of zero percent to one quarter percent to foster growth. As a result mortgage rates, CD rates and savings rates have all made record lows. You can expect more of the same to the end of 2014.

The Federal Open Market Committee released a statement saying the economy continues to expand moderately and inflation expectations remain stable. In the FOMC's statement, the committee also believes growth will slow down in the coming quarters and then pick up gradually.

Slow growth, or even moderate growth, and low inflation equals low mortgage rates and deposit rates. If you recently purchased a home or refinanced a mortgage, low mortgage rates have saved you a ton of money. If you live off of interest income from deposits low rates have been an income crusher.

The Fed's dual mandate of low inflation and maximum employment drives their decision making. The past several years we have seen high unemployment and low inflation, forcing the FOMC to keep the Fed funds rate near zero percent. In fact the FOMC continues to say conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014"

Since we are hitting yet another slow patch there is talk of QE3. Quantitative easing (QE) is Fed speak to lower bond yields to help the housing market and foster growth.

Previous rounds of QE by the Fed including QE1 when the Fed bought $1.25 trillion in mortgage-backed securities and QE2 when the Fed bought $600 billion in long term U.S. Treasuries, all in the name of lowering interest rates.

I personally hoped for stronger growth by now as we are a few years into the current economic expansion. Stronger growth will help the millions of unemployed find work and raise deposit rates.

Yes, higher interest rates mean higher mortgage rates as well but if we continue to have meager growth people won't be buying homes so what's the point of low mortgage rates?
Author: Brian McKay
April 27th, 2012