Mortgage rates remain relatively stable despite the Fed News. Here’s why. Since the onset of the COVID-19 pandemic in the U.S, the housing market has been experiencing ups and downs, with the economy hit hard by massive joblessness and recession. At the same time, the housing market has had historically lowinterest rates; a move implemented to curb the impacts of the pandemic in the housing market. Meanwhile, it is important to note that the Federal Reserve does not control mortgage rates, but it does affect them more than any other institution. During these pandemic times, the Fed has bought consumer mortgage rates worth of billions of dollars in efforts to keep the mortgage rates low during these unprecedented times. The efforts of the Fed seem to be working effectively since the mortgage rates have hit record lows nine different times since March 2020. Moreover, the Fed’s position on employment and inflation policy could significantly help the rates remain low for years to come. However, although the Fed doesn’t set or control mortgage rates, it had played a significant role in holding them down during this pandemic times. Through Quantitative Easing (QE), the Fed can directly impact mortgage rates. QE occurs when the Fed injects money into the U.S economy to prevent the rates from skyrocketing, to encourage consumers to keep borrowing money and keep the dollar circulating. This is what happened during the early stages of the pandemic, where the Fed bought consumer mortgages worth billions of dollars on the second marketplace. More capital in the second marketplace translates to lower interest rates for consumers.
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Moreover, the Fed, through the Federal Open Market Committee (FOMC) is known worldwide as the keeper of the Federal Funds Rate, which is the prescribed rate at which banks lend money to each other on an overnight basis. The Fed Funds Rate is correlated to Prime rate, which is the lays the basics for most bank lending, including consumer credit cards and business loans. Low Fed Funds Rate indicates that the Fed is trying to promote economic growth. However, the same low Fed Funds rate can bring about wage pressure and promote risk-taking, both of which could easily cause inflation. This explains why the Fed ended scrapped its zerointerest-rate policy in December 2015. Despite the Fed news, mortgage rates have remained relatively stable because mortgage rates are neither set nor established by the Federal Reserve, or any of its members. Rather, the rates are determined by the price of mortgage-backed securities (MBS) sold via Wall Street. Work cited. https://themortgagereports.com/17724/how-mortgagerates-move-when-the-federal-reserve-meets
The Power Is Now Magazine | OCTOBER 2020
