The Federal Open Markets Committee (FMOC) begins its 2-day policy meeting today. The FMOC is a 12 member committee made up of the Board of Governors and the five regional Fed Reserve Bank presidents. The Fed sets monetary and economic policy and the decisions it makes have a big impact on our over all economy. The goal of the Fed is to promote growth and employment while keeping prices stable, that is, grow the economy while keeping inflation in line. This is always a balancing act. Last year there was a split among members of the FOMC with some more concerned about a return of inflation while others were more focused on the economic slowdown. Now it seems that all parties are in agreement that the economy has to pull out of its dive and grow, or deflation will be a much bigger problem than future inflation.

Controlling interest rates is the Fed’s biggest weapon, but with rates effectively at 0 there is no chance of their cutting further, and absolutely no chance that they will raise rates. They still have a lot of other weapons in their arsenal, and they have been aggressively using them to get the economy back on track. One way they are trying to get more money into the economy and into consumer’s hands is by lowering mortgage interest rates and making housing more affordable, both for new home buyers and for home owners who want to refinance their existing loans. Mortgage rates dropped down to near record levels a few months back when the Fed announced that it was starting a program to buy mortgage backed securities to drive rates down. They set a goal of buying $500 billion in mortgage bonds by July, and they have spent about 40% of their money so far. Rates have dropped, and they are much lower than they would be if the Fed hadn’t stepped in. But many home owners are waiting for rates to drop lower before pulling the trigger on their refinance. This might happen and it might not. Mortgages usually benefit from economic bad news as money rushes out of stocks and into the fixed income market. But the bad news now is mostly baked into the pricing already. On the other side, all the new plans to stabilize the economy cost money and this means the Fed is borrowing heavily through new debt issues, or printing more money to cover the expenses. Both of these are bad news for bonds in general and mortgage bonds in particular, and if it wasn’t for Fed buying, rates would be substantially higher. Over the last month or so, mortgage rates have gone back in forth in a very narrow range.

So what can the Fed do at its meeting to drive rates lower? There are two things that have been discussed, and if either of these is announced at the conclusion of the FOMC meeting tomorrow, rates may break out of their channel and drop again. They are:

1. A program to buy long term US Treasuries. The Bank of England has done this with British bank notes, and rates have dropped to their lowest point in years. There is now a big spread between long term treasury rates and corporate and mortgage debt, and if the Fed stepped in and started buying treasuries, the yield on these securities would fall, driving rates lower. The Fed floated this idea at the December meeting but backed away. A surprise announcement in favor of this plan will mean a bond market rally and lower rates overnight. But this would be a big surprise if they do this now.
2. A continuation of the mortgage backed securities purchase program. This seems more likely. The Fed has kept the market rates low over the last few months, and once they stop buying rates are likely to go back up. They have already stated that they want to keep mortgage rates low, and this is an effective program to do that. An announcement that they will extend the program isn’t likely to force a huge rally, but it will add reassurance that the Fed is in this for the long haul and this will add stability to the market.

There is an old investment saying – Don’t fight the Fed. This is as true now as it ever was. What they do is likely to influence the rates we see going forward.

Illinois Mortgage Rates                   First time home buyer loans               

We Lend in All 50 States

Free Mortgage Quote:

Get Best Advice from illinois mortgage broker

Contact Your illinois mortgage company Today

Find the Maximum FHA Loan Amount in Your Area Here illinois FHA loans

Are you Looking for first time home buyers loan ? Find Free Tips and Advice here

How to update yourself with Current chicago mortgage rates ? The Answer is here.

Looking for mortgage chicago il

Chicago FHA loans

We Offers illinois home mortgage Loans with best mortgage rates