A Simple Explanation Of The Federal Reserve Statement (September 21, 2010 Edition)

Today, in its 7th meeting of the year, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 

The Fed Funds Rate remains at a historical low, within a Fed's target range of 0.000-0.250 percent.

In its press release, the FOMC said that the pace of economic recovery "has slowed" in recent months. Household spending is increasing but remains restrained by high levels of unemployment, falling home values, and restrictive credit.

For the second straight month, the Federal Reserve showed less economic optimism as compared to the prior year's worth of FOMC statements dating back to June 2009. However, the Fed still expects growth to be "modest in the near-term".

This outlook is consistent with recent research showing that the recession is over, and that growth has resumed -- albeit at a slower pace than what was originally expected.

The Fed also highlighted strengths in the economy:

1. Growth is ongoing on a national level
2. Inflation levels remain exceedingly low
3. Business spending is rising

As expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period".

There were no surprises in the Fed’s statement so, as a result, the mortgage market's reaction to the release has been neutral. Mortgage rates in Arizona are thus far unchanged this afternoon.

The FOMC’s next meeting is a 2-day affair scheduled for November 2-3, 2010.

The Federal Reserve Meets Today. Should You Lock Your Rate Before It Adjourns?

The Federal Open Market Committee adjourns from its 6th scheduled meeting of the year today, and 7th overall.

Upon adjournment, Federal Reserve Chairman Ben Bernanke will release a formal statement to the market. In it, the Fed is expected to announce "no change" to the Fed Funds Rate.

Currently, the Fed Funds Rate is within a target range of 0.000-0.250 percent.  It's been at this same level since December 2008.

Note that the Feds Funds Rate is not "a mortgage rate" -- nor is it a a consumer rate of any kind. The Fed Funds Rate is a rate that defines the cost of an overnight loan between banks. And, although the Fed Funds Rate has little direct consequence to everyday Phoenix homeowners, it is the basis for Prime Rate, the interest rate on which most consumer cards are based, plus many business loans, too.

Therefore, because the Fed Funds Rate won't change today, neither will credit card rates.  Mortgage rates, however, are a different story.  Mortgage rates should change today -- regardless of what the Fed does.

It's more about what the Fed says.

In its statement, the Federal Reserve will highlight strengths and weaknesses in the economy, and threats to growth over the next few quarters. Depending on how Wall Street interprets these remarks, mortgage rates may rise or fall.

If the Fed's comments signal better-than-expected growth, bond markets should lose and mortgage rates should rise. Conversely, if the Fed's comments signal worse-than-expected growth, mortgage rates should fall.

If you're actively shopping for a mortgage, it may be prudent to lock your rate ahead of the Fed's announcement today. The Fed adjourns at 2:15 PM ET.  Call your loan officer to lock your rate.

The Fed meets 8 times annually.