The Federal Reserve kicked off its new strategy of clearer communications at the close of January’s Open Market Committee meeting last Wednesday afternoon. With just a few words, plus some charts (page 3), the Fed now expects to keep interest rates “extraordinarily low” for a period up to 18 months longer than the mid-2013 estimate previously in place. Also for the first time, the Fed officially revealed more explicitly that it will use an inflation target to help control monetary policy.

The Fed’s influence on mortgage rates

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First, two questions to consider

Question1: What has been one of the biggest stumbling blocks of the HARP program?

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Overall, mortgage rates dipped again last week as the future direction of inflation and our economic recovery remain unclear. Last Wednesday, the fed concluded a two-day meeting in which Federal Reserve Chairman Ben Bernanke held an unprecedented press conference immediately following the meeting.

As we anticipated, the chairman revealed little new information about how present and future conditions will influence the mortgage market. Read the rest of this entry »

Recently, a visitor to HSH.com had a question which they submitted in our “Ask the Expert” section. Their question was, “What is the difference between ‘rate’ and ‘APR’?”

Here was our answer: Read the rest of this entry »

The second round of the Federal Reserve’s Quantitative Easing (QE2) program kicked into gear last week. So far, it’s not producing the desired effects (at least in terms of influencing interest rates downward). Before we get too ahead of ourselves, allow me to reiterate that the program has just gotten underway. Let’s allow the program to get going before we draw any concrete conclusions.

That said, what we do know for sure is that the effects of this program are largely unknown. For the most part, QE2 is an unprecedented undertaking without knowable outcomes.

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When will interest rates rise?

Interest rates will rise when the economy shows some consistent signs of recovery. Interest rates will rise when “fight to safety” investments become less favorable in the eyes of investors. Interest rates will rise when the yields on those safe investments — such as the 10-year Treasury — aren’t high enough to keep investors interested:

Mortgage rates are of course one of those market interest rates, influenced by the yields on risk-free investments such as Treasury securities. Spreads between Treasuries and mortgages had widened appreciably in recent weeks, owing more to a desire for safety than a disdain for mortgage investments. The yield on the 10-year Treasury has risen by about 15 basis points (0.15%) over the last [few] weeks, but only a little of that increase has passed through to mortgage rates, which hold near record lows.

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We’re “borrowing” this topic from our friend Mitch over at TopFinanceBlog.com. While Mitch’s latest post is titled “Why I Say Credit Scores Are Worthless,” we’re taking a somewhat different approach.

Banks and credit card companies have been jacking up interest rates and fees (if not simply canceling cards) more and more these days — sometimes without warning — as they prepare for the new business landscape that will be created by Congress’ upcoming credit card reform.

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The release following the conclusion the Fed’s Federal Open Market Committee (FOMC) meeting today revealed the Fed’s plans to begin winding down one of their many facilities (emphasis added):

…the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

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Our prediction for the future of mortgage rates as well as our interpretation of the minutes from the Federal Open Market Committee’s (FOMC) last meeting were confirmed yesterday in a speech delivered by an FOMC member.

Federal Reserve Bank of Atlanta President Dennis Lockhart, also a voting member of the FOMC, said “Certainly we have low interest rates today” and “I would expect that to continue for some time.”

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According to the latest issue of HSH’s Market Trends Newsletter, “Short Week, Lower Rates,” the factors that once caused rates to rise sharply have eased off for the moment.

“A few weeks ago, mortgage rates flared higher, climbing from still-economic-emergency levels. The rise came amid what was interpreted to be signals of an improving economic outlook, the potential for inflation, pondering over what the Federal Reserve and Treasury would do and rampant government spending, among other factors.”

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