Mike’s Real Estate Show

Some facts on the Fed, Fed Funds Rate and Mortgage Rates

-The Federal Reserve was established in 1913. The Fed controls monetary policy for the U.S.  The Federal Open Market Committee (FOMC) consists of twelve members.

-The FOMC holds eight regularly scheduled meetings per year.  At these
meetings, the Committee reviews economic and financial conditions,
determines the appropriate stance of monetary policy, and assesses the
risks to its long-run goals of price stability and sustainable economic
growth.

-The Federal Reserve doesn’t control mortgage rates.

-The Fed Funds rate is the shortest of short-term rates — literally, an
overnight loan between banks– and a fixed-rate mortgage is all the way
at the other end of the scale, a loan that lasts as long as 30 years.

-Changes in the federal funds rate trigger a chain of events that affect
other short-term interest rates, foreign exchange rates, long-term
interest rates, the amount of money and credit, and, ultimately, a range
of economic variables, including employment, output, and prices of goods
and services

-When the Fed raises or lowers interest rates it increases or decreases
economic activity.

-Lower rates can help banks to make certain kinds of loans less
expensive, especially for business and certain kinds of consumer
lending, and that can help to fuel growth.

-Higher rates can cool demand, helping to keep inflationary pressures
from forming.

-When the Fed cuts interest rates — fixed mortgage rates may actually
rise as a result.  If the Fed is taking steps to address economic
weakness by lowering rates, that could mean a return to faster growth –
and possible higher inflation, as well — is coming sooner, rather than
later.

-So what moves mortgage rates? Supply.  Demand.  Competition for money.
Inflation.  The Economy.  Expectation.
Contributed by: Julie M. Drady
Home Mortgage Consultant
Wells Fargo Home Mortgage
175 West College Ave.
Santa Rosa, CA 95401
707-535-2651 Tel=20
866-679-2084 Toll-free
707-849-8090 Cell