How Today’s Federal Reserve Meeting Could Change Home Affordability

The Federal Open Market Committee adjourns from its 2-day meeting today.

The monetary policy-setting group is expected leave the Fed Funds Rate within its current target range of 0.00-0.250 percent.

This is the lowest range for the Fed Funds Rate in history and, frankly, there isn’t much room left to go lower.  Therefore, markets aren’t really concerned about what happens to the benchmark lending rate today.

Instead, markets will focus on the Fed’s ideas to revive the U.S. economy.

In its post-FOMC press release last month, the Federal Reserve pledged to “employ all available tools” to get the economy moving in the right direction.  At the time, some of those tools were already in play, including making direct loans to large companies and buying bad debts from commercial bank balance sheets.

And since that meeting, the Fed has put its money where its press release is.

Early this year, the Fed started a program to buy $500 billion in mortgage-backed debt and those ongoing purchases are part of what’s keeping mortgage rates relatively low.  The Fed has since made it easier for member banks to borrow money, too.

Each of these steps is meant to pour gas into the U.S. economic engine and the Fed is pledged to keep trying new approached until something works.  And this is what mortgage markets will be concerned with today.

If the Fed’s next stimulus plan is deemed ineffective or too costly for its own good, mortgage markets will likely sell off, causing mortgage rates to rise and making housing payments more expensive.  The jump could be somewhat sudden because Fed announcements are often met with emotional, knee-jerk reactions.

By contrast, if the Fed’s next steps are deemed on target, expect mortgage rates to fall only slightly.  To some extent, this outcome is already priced into rates as of this morning.

The FOMC’s official press release hits at 2:15 PM ET.

(Image courtesy: The New York Times)