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28Mar2019

Mortgage Rates Drop After Fed Announcement

By Selina Stoller, Summit Consumer Receivables Acquisitions, LLC ***

The Fed has given the market what it wanted – it’s ending balance sheet reduction in September.

A key announcement was made on Wednesday by the central bank revealing the Federal Reserve’s program to reduce the bonds it holds on its balance sheet to end in six months – which is sooner than expected. The Fed also revealed it would begin tapering the number of proceeds it allows to roll off its balance sheet each month.

The amount for Treasurys will drop to $15 billion in May, while technically still allowing the proceeds to roll off from mortgages; the Fed will simply reinvest them in Treasurys.

This move is being closely watched by financial markets.

The announcement comes amid months of skepticism on Wall Street over how much more the Fed will reduce its balance sheet, which is mainly composed of bonds it purchased during and after the financial crisis. The process (known as quantitative easing) was considered key in helping stimulate financial markets and lowering long-term interest rates.

Markets have grown increasingly concerned over how the Fed’s monetary policy responds to economic growth and how much tightening the central bank will allow.

Fed Chairman Jermone Powell indicated as recently as November that the Fed had a distance to go before it would stop raising rates and reducing the balance sheet but then announced during congressional hearings the Fed’s stance changed after recent economic downturn signals.

Mortgage rates also tanked thanks to the Fed’s announcement, and they could go even lower.

The average rate on the popular 30-year fixed rate mortgage has been sitting at 4.40 percent fell sharply to 4.32 percent. Rates surged to over 5 percent at the start of November, causing home sales to fall in December and January. The drop in rates helps both potential buyers and current homeowners who benefit from refinancing.

Overall, the Fed is not raising the rates because the economy is weakening. Lower interest rates are a plus as long as consumer confidence stays high.

 

  • 28 Mar, 2019
  • Summit Consumer Receivables Acquisitions, LLC

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