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 as expected. There will not be an update to the SEP projections at this meeting (those are the individual governors’ Fed Funds rate projections for the next three years).
In the Q&A press conference that follows, expect a discussion on how the Fed will coordinate efforts with a Janet-Yellen-led Treasury Department, and the Biden administration in general. But the primary focus will still be on how the FOMC’s economic expectations are changing in light of the resurgence in the virus, the announced $1.9T additional stimulus plan, the vaccinations underway, and how combined, those may shift the expected timing of the employment and economic recoveries over the medium term.
Expect the Fed Chair to discuss those issues in his statement, then to take questions probing for additional details, especially on timing. Finally, in recent appearances, Fed Chairman Powell took any thought of a bond purchase taper off the table. But with the taper tantrum memory of 2013 not entirely faded away expect this topic to come back to the forefront as quickly as the recovery picture becomes more clear.
With the Fed committed to low rates through at least 2022, the bond market is more likely to be influenced by economic outcomes dictated by the rate of COVID-19 infections, the pace of vaccinations reaching a point of “herd immunity,” and how those factors mesh together. If the equity markets have it right, the recovery may come fast and furious. Some of the prevailing thought is if it does, it will push inflation and force the Fed’s hand sooner than later with its’ bond purchases and the Fed Funds rate. It's too early to tell if that could occur in 2021, or not until 2022 or even 2023. But there is chatter about it and that could keep rates from moving any lower.
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 seems to be far into the future.
While 2020 was a year like no other, 2021 presents as much in the way of uncertainty, even though expectations are going in a positive direction. Although the anticipation is great, there is not a clear consensus on the timing of the recovery with so many cross currents swirling about. It will take some time for each of these factors to come better into focus, and as they do they each have the ability to influence rates.
What Do Borrowers Do Now?
For borrowers looking to 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 ability to schedule to a closing date, and the lender’s track record meeting those dates, should be appreciated for the value and peace of mind it provides.
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 still presents timing and capacity issues that may outweigh the opportunity of lower rates. Borrowers should understand those factors.