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Mortgage Rates Will Stabilize- The Fed Leaves Interest Rates Alone

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mortgage-rates-the-fed-leaves-interest-rates-aloneThe Federal Open Market Committee decided to leave the fed funds rate in a targeted range of zero to one quarter percent to continue to spur economic growth. The economy is showing signs of improving but there isn't enough growth at this point for inflation to be a concern to raise interest rates.

Since the Fed isn't raising the fed funds rate, today's mortgage rates should stabilize in the range they are currently in of 5.25 percent to 5.50 percent. Possibly even decline to the 5.00 percent range for a conforming 30-year mortgage.

Consumer spending is stabilizing but remains sluggish because folks are still losing their jobs or worried about losing their jobs.  Lower household wealth and tighter credit are also putting a damper on consumer spending. Businesses are also cutting back on investing and hiring.

The prices of energy and other commodities have gone up but there is enough slack in production of natural resources to keep inflation down for some time.

The Fed also announced they are slowing down the process of buying $300 billion of Treasury securites by the end of October 2009. The Fed also has a $1.25 trillion program of buying mortgage backed securities. The program of buying these securities was designed to provide support for mortgage lending by lowering mortgage rates which would support the housing market.
Author: Brian McKay
August 12th, 2009