Fed Meeting and Mortgage Rates July 2017

Tomorrow afternoon the Federal Open Market Committee (commonly refereed to as the “Fed”) issues their decision about raising short term interest rates and their economic outlook.  Before we go into the market expectations and what may happen with mortgage rates after the FOMC issues their statement; lets cover a very basic point that most people don’t know – what is the FOMC? Per the Federal Reserve website: “The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System. The FOMC is composed of 12 members–the seven members of the Board of Governors and five of the 12 Reserve Bank presidents.”

As you know the FOMC has been raising short term interest rates over the last few years as the economy recovers from the mortgage crisis of 2007-2008.   Some people believe when the FOMC raises short term interest rates they are raising mortgage rates however that is not true.  The FOMC does not control mortgage rates; mortgage rates are determined on the Mortgage Backed Securities market (a bond market for mortgages) and individual lenders ability to loan money at a specific rate.  Interest Rate hikes from the FOMC directly affects things like home equity lines of credit, and credit cards.

So are bond investors and mortgage lenders worried about the FOMC raising short term interest rates tomorrow? No; no one thinks they will.  Bond investors and mortgage lenders are going to be watching what the FOMC says about the economy and possible future hikes in short term interest rates.  The key word will be “inflation”….if they are concerned about inflation moving up too fast that will be bad for bonds and mortgage rates.  If they have concerns over inflation falling then that would be good for bonds and mortgage rates.  General expectations are that the FOMC will not raise rates; and issue a middle of the road guidance for future hikes and economic outlook.

As always we’ll keep an eye on the events and the market reaction.