What Powell and the Fed Just Did Should Help Keep Mortgage Rates Low


What Powell and the Fed Just Did Should Help Keep Mortgage Rates Low

Although the economy is showing signs of life after the blows it has suffered from COVID-19, the Federal Reserve has said it is not ready to reverse its current pandemic targeting policies.

Fed Chairman Jerome Powell (pictured) and his central bank colleagues announced on Wednesday that until several economic benchmarks are reached, they will keep a key interest rate close to zero. This should continue to help mortgage borrowers.

“The ongoing public health crisis continues to weigh on the economy and risks to the economic outlook persist,” Fed policymakers said in a statement.

Mortgage rates, already well below long-term averages, cooled in April and the Fed’s announcement will keep the pressure on mortgage costs on real estate. home buyers and owners are considering refinancing still have the opportunity to score historically low rates.

The Fed wants to have more confidence in the economy

Facade on the Federal Reserve building in Washington DC

Paul Brady Photography / Shutterstock

The Federal Reserve has two goals, under its so-called dual mandate. He wants to see “a maximum of jobs” and stable prices.

The economy has shown some pretty encouraging signs that it is breaking free from the COVID-19 quagmire and heading towards the Fed’s targets. But the recovery is “patchy and far from complete,” President Powell said at a press conference Wednesday afternoon.

The government’s March jobs report showed 916,000 jobs were created last month, exploding estimates and lowering the unemployment rate to 6%. It was the lowest in a year.

Powell says the Fed needs to see sustained gains in employment. “We had an excellent employment report – it is not enough,” he told reporters.

Another positive economic sign has been the return of inflation, which has risen steadily this year after hovering around 1% since July 2020. After reaching 1.4% in January and 1.7% in February, the inflation climbed to 2.6% in March.

But the Fed said stable inflation of at least 2% would be needed before it was ready to reverse its pandemic policies.

The impact on mortgage rates

United States Treasury Savings Bonds

larry1235 / Shutterstock

The Fed’s decision to keep its key rate – the federal funds rate – close to zero will keep the interest rate environment low that has helped keep mortgage rates low. Officials have indicated that they are unlikely to increase the federal funds rate until 2024.

The central bank also reaffirmed its commitment to buy $ 80 billion per month in treasury bonds, a strategy that contributes more directly to cheap mortgage rates. Buying bonds helps control bond yields, or interest rates. As these yields rise or fall, so do the rates on fixed-rate mortgages.

“These asset purchases help foster smooth market functioning and supportive financial conditions, thereby supporting the flow of credit to households and businesses,” the Fed said.

After starting the year at 0.93%, the 10-year Treasury yield followed an upward trend until early April when it started to decline.

Mortgage rates have moved in the same way this year: they climbed for a few months, but have come down in recent weeks and are now back to some of the lowest levels ever.

Thirty-year fixed-rate mortgages averaged just 2.97% last week, according to long-running mortgage giant Freddie Mac’s investigation.

How to take advantage of today’s low rates

Young couple meet a financial advisor for a real estate investment

goodluz / Shutterstock

As mortgage rates stabilize and the Fed doesn’t push them higher, US home buying activity could become even more intense.

“Housing statistics for next year are expected to be outsized as rates remain low,” said Corey Burr, senior vice president of TTR Sotheby’s Realty in Washington, DC

If you are buying a home or refinancing, you will need strong credit to get a low mortgage rate. To see how your credit score compares, you can easily check for free. It’s good to know where you are as early as possible, in case your credit needs a little attention.

Once it’s time to look for a lender, don’t rush for the very first one because you may be able to do better. Comparing five or more loan offers can help find the best available rate in your area for people with a similar credit rating.

If you’re trying to lower the overall cost of homeownership, don’t stop at your mortgage rate. Are you sure you are paying the lowest price on home insurance? Comparing insurers only takes a few minutes and can save you money hundreds of dollars a year.

Then, to help you with your monthly loan payments, you can download a popular app that lets you earn record stock market returns – simply by invest “the spare currency”.


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