The Federal Reserve just increased the Fed Funds rate .75%. What does that mean, and how does it impact the mortgage market? Here are three things to know about today’s news:
1. The Federal Reserve Influences Mortgage Rates, They Do Not Set Them
Many have the misconception that the Federal Reserve’s actions have a direct impact on mortgage rates. Many assume that if a mortgage was offered 6% this morning, it’s now 6.75% after this afternoon’s announcement. That isn’t the case, however. The Federal Reserve sets the rates banks charge each other, not the rates lenders offer borrowers. The Fed’s actions influence the overall rate environment; it doesn’t set those rates.
2. The Federal Reserve is Trying to Ease Inflation
The Federal Reserve is heavily-focused on easing inflation in the US economy. They are trying to be aggressive in their actions to stop inflation before it takes hold for the long haul. This is good news for home affordability; lower inflation helps boost borrower buying power.
3. Today’s Rate Decision is a Step in the Right Direction for the Economy
The Federal Reserve has two goals: full employment and price stability. The unemployment rate remains low at below 4%, but increasing inflation is causing problems in the US economy. The Federal Reserve’s focus on reining in inflation and today’s announcement will make a significant impact in helping to stabilize the economy as a whole.
Author: James Baublitz, VP Capital Markets