December FOMC Announcement: No Rate Change

December 16, 2020

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 policy decision was uneventful and as expected.

In the Q&A press conference that will follow the focus will be on how the FOMC’s economic expectations are changing in light of the vaccinations underway and how that may shift the expected impact on the economy from the surge in the pandemic. Expect the Fed Chair to discuss that and take questions probing for additional details.

Fed Chairman Powell may also announce plans to adjust the bond purchase program, “QE.” Expectations are that they may shift purchases to longer maturity Treasury bonds. This “WAM” change (weighted average maturity) would be another move by the Fed to support the longer term health of the economy. Some analysts feel the Fed will want to hold off on this for now, saving it for a time when the economic picture is a bit clearer and the possibility of another round of fiscal stimulus is better known.

What’s Next?

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, the pace of vaccinations in terms of reaching a point of “herd immunity,” and how those factors all mesh together.

Sentiment in the bond market can change quickly. And with mortgage rates still very close to all-time historic lows, it is prudent to rate lock mortgage loans now to avoid the lopsided chance of higher rates. Even if that risk is far into the future.

The first FOMC meeting of 2021 will be held January 26 - 27. Between now and then, investors will wrap up positions for year end, Congress may surprise and pass fiscal stimulus, the impact of the pandemic surge will be measured in another month’s worth of economic indicators, and the pace of vaccinations will be more certain. All of these factors will adjust the economic outlook, and therefore may impact term rates, including mortgage rates.

What Do Borrowers Do Now?

For borrowers looking to either finance the purchase of a home or refinance their existing 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 short closing times.

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.

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.

Happy New Year everyone, here’s to a brighter 2021.

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