Fed to Keep the Benchmark Rate Low

Fed to Keep the Benchmark Rate Low

Fed to Keep the Benchmark Rate Low

According to Realtor Magazine, “The Federal Reserve voted on Wednesday to keep its benchmark interest rate near zero and historic lows as the economy continues to recover from the COVID-19 pandemic.” The Fed to keep the benchmark rate low and further indicates that they won’t likely raise interest rates until 2023—at the earliest.

But that doesn’t necessarily translate into good news for mortgage rates—which have begun rising over recent weeks. The Fed’s benchmark rate does not directly influence mortgage rates. The Fed’s federal funds rate is not what consumers pay. It is what banks charge one another for short-term lending. However, the Fed’s action can indirectly impact what consumers end up paying on mortgage rates.

Fed to Keep Benchmark Rate Low

Bloomberg reports, “In its quarterly review of monetary policy that covers 90% of the world economy, no major western central bank looks to hike interest rates this year.”

Mortgage Rates Loosely Follow the U.S. Treasury 10-Year Bond

According to Freddie Mac, mortgage rates reached an all-time low in January (the 30-year fixed-rate mortgage averaged 2.65%). But over recent weeks, they’ve been rising, increasing more than 30 basis points since the start of the year. Last week, the 30-year fixed-rate mortgage averaged 3.05%. Investors are growing concerned about inflation.

Still, economists are quick to note mortgage rates are still hovering near all-time lows. “People have been spoiled by getting sub-3% loans,” Robert Frick, corporate economist at Navy Federal Credit Union, told CNBC.

One Move that Could Help Push Mortgage Rates Lower

Since the pandemic, the Federal Reserve has been increasing its purchases of mortgage-backed securities to add liquidity into the market. “Reaffirming its commitment to ongoing asset purchases while acknowledging that a tapering is on the horizon at some point—likely pretty far off—should help slow the rise of mortgage rates,” Danielle Hale, chief economist of realtor.com®, told MarketWatch.

The Mortgage Bankers Association predicts mortgage applications to stay high even as rates tick above the 3% mark. “While mortgage rates are likely to move somewhat higher, the purchase market remains on track for a record year,” Mike Fratantoni, MBA’s chief economist, told MarketWatch.

A Big Worry

There is a caveat in this bullish outlook. On Wednesday, the Federal Reserve sharply ramped up its expectations for economic growth. Still, it indicated no interest rate hikes are likely through 2023 despite an improving outlook and a turn this year to higher inflation.

Higher inflation is a significant worry. According to Dinar Recaps, “The Federal Reserve in the US roughly DOUBLED the size of its balance sheet last year, with the M2 money supply growing faster than any year in history except 1943.”

More importantly, there’s no end in sight. The Federal Reserve, the US Treasury Department, and influential members of the United States Congress all want even MORE expansion of the money supply. Since 1913, the dollar has lost 95% of its value. History warns of empires failing due to depreciating currencies.

The Fed is in a Box

If inflation starts to roar and comes in above 3%, the traditional medicine is to raise interest rates to cool things down. With debt now over $28 trillion and heading for $35 trillion, raising interest rates would end the stock market boom and bankrupt many businesses.

Here is CNN on April 16: “The stock market is soaring, and bond yields have pulled back after a big spike earlier this year. But make no mistake: Investors still have plenty to fret about when it comes to the threat of inflation.

The US economy is rebounding thanks to stimulus and Covid-19 vaccines. Retail sales went through the roof in March; the housing market roared back to life, and the number of people filing for unemployment claims plunged last week. And all of that follows the blockbuster March jobs report.

This growth will likely lead to inflation — and higher interest rates. The only question is when.”

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Fed to Keep the Benchmark Rate Low - Styl Properties
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Fed to Keep the Benchmark Rate Low - Styl Properties
The Fed to keep the benchmark rate low and further indicates that they won’t likely raise interest rates until 2023—at the earliest. Stylproperties
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