In the just-released FOMC statement, the Fed announced no change to the Fed Funds target rate, leaving it in the range of 0.00% to 0.25%. Today’s election-delayed policy decision was uneventful and as expected.
In the Q&A press conference that will follow shortly, the focus will be on how the FOMC’s economic expectations are evolving in light of the surge in the pandemic. Expect the Fed Chair to discuss that and take questions probing for additional details. In light of the as yet undecided Presidential election outcome, any questions around an additional stimulus package will be met by the explanation that the Fed can, and is, addressing liquidity, but the legislature needs to address the problem of solvency and must provide additional stimulus to do so (thank you Doug Gordon, WaterStone Bank CEO, for those words).
There may also be additional questions about the new policy framework Chairmen Powell announced at the Jackson Hole conference. How the Fed will pursue “average inflation targeting” and responding to “shortfalls” from maximum employment.
Finally, Chair Powell may also be asked for specifics on yield curve control (YCC). That refers to increases in longer term QE bond purchases in order to stimulate the economy. The Fed has recently given reason for the markets to expect adjustments in their bond purchases along these lines.
With the Fed committed to low rates into at least 2022, the bond market is more likely to be influenced by economic outcomes, the rate of COVID-19 infections, and the deployments of effective vaccines then it normally would be by changing Fed expectations. But sentiment in the bond market can change quickly. And with mortgage rates still very close to all-time historic lows, it’s never a good time to become complacent in terms of financial risk.
The last FOMC meeting of 2020 will be December 16. Between now and then, how the election plays out will be the first order of business. This extends beyond the presidential race with one, and possibly both Georgia Senate races being subject to run off elections to be held in January. Those races may end up determining if the Senate flips to blue and what that will mean in terms of the size of a stimulus package. Many bond analysts are suggesting the bond markets, and therefore mortgage rates, will continue at current levels until that becomes more clear.
What Do Borrowers Do Now?
For borrowers looking to either purchase a home or refinance their mortgage loan, they should appreciate that current mortgage rates are at or very near all-time historic lows. And borrowers should give consideration for a lender’s track record dealing with capacity issues and increased turn times. We have been very fortunate here at Waterstone Mortgage that our Processing and Operations staffs have maintained industry-leading closing times, despite ongoing record-breaking volumes.
A qualifying purchase borrower with a property at stake should work closely with their loan originator to rate lock the mortgage financing that fits their homeownership goal as soon as that’s determined. On refinances, the closing date expectations should be carefully managed to accommodate the current closing calendar and the lender’s capacity.
Whether or not interest rates end up lower at some point, in the timespan a rate lock decision is required of a borrower – this market environment presents timing and capacity issues that may outweigh the opportunity of lower rates. Borrowers should understand those factors.
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