How Mortgage Rates Move When The Federal Reserve Meets

Mortgage Rates Expected To Change

The Federal Reserve's Federal Open Market Committee (FOMC) adjourns from a scheduled two-day meeting Wednesday afternoon. The meeting's outcome is expected influence U.S. mortgage bonds which, in turn, will cause mortgage interest rates to change.

If you're currently unlocked on your loan; or about to start a refinance, consider yourself on alerted. Beginning Wednesday afternoon, mortgage rates may look decidedly different.

Since crossing 4 percent for the first time in nine months last week, mortgage rates have since dropped back to the threes. Rates for VA loans, FHA loans, and USDA loans are even lower.

It's an excellent time to consider locking a rate. Rates could change dramatically later this week and it would unfortunately to miss the last chance at sub-4 percent rates.

Click to see today's rates.
The Fed Does Not Control Mortgage Rates

Mortgage rates are made on Wall Street. Rates are not set by the Fed.

The Federal Open Market Committee is a rotating, 12-person sub-committee within the Federal Reserve. The group is currently headed by Federal Reserve Chairperson Janet Yellen, and meets eight times annually on a pre-determined schedule.

The Fed also meets on an emergency basis, as needed.

For example, during the three-year period 2008-2011, as the U.S. economy staved off depression, the Federal Open Market Committee met 13 times separate from its regularly scheduled meetings in order to review the group's ongoing stimulus plans.

In the time since, the Fed has met just twice in "emergency" -- once to discuss what would happen if the U.S. government failed to raise its debt limit (2013) and once to discuss how the group would communicate forward-guidance to the markets (2014).

The FOMC's most well-known role is as keeper of the Fed Funds Rate. 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, and Prime Rate is the basis of most bank lending including most business loans and consumer credit cards.

Since December 2008, the Federal Reserve has held the Fed Funds Rate in a target range near 0.00% which has made borrowing money "cheap" for both businesses and consumers.

The Federal Reserve has advised Wall Street that the Fed Funds Rate will remain near zero percent until the labor market is markedly improved, assuming stable inflation. Once the economy improves, a rise in the Fed Funds Rate becomes possible.

An increase to the Fed Funds Rate may not move mortgage interest rates higher, though.

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