By Brian O’Connell
With inflation in check, the Federal Reserve saw no need to move interest rates higher; a decision that should keep bank rates low for the time being.
According to an April 29 statement by the Federal Reserve: “Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.”
The moral of the story is that the Fed has, for the moment, stopped worrying about inflation, and has decided to keep its key federal funds interest rate benchmark at 0.25%. The Fed also said that they won’t be raising or cutting rates anytime soon.
According to the Federal Reserve, “the Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The decision to keep rates where they are, at a historically low level of between 0% and 0.25%, coupled with the Fed’s strategy to buy up to $1.25 trillion in mortgage-backed securities, should keep mortgage rates relatively low for a while longer.
Right now, rates for 30-year-fixed mortgages are at 5.06%, which is approximately 100 basis points lower than the 5.85% rate we saw last year at this time. For a 15-year-fixed rate mortgage, you can do even better, clocking in at 4.77%.
Conversely, in an economic environment where saving has replaced spending in the consumer personal financial mindset, low Federal Funds rates mean low interest rates for things like savings, checking accounts, and bank CDs. Taking CDs as an example, 3-month rates in 2006 yielded 1.76%; while one-year CD rates at the same time yielded 3.81%. Today those yields are much less, at 0.75% and 1.29%, respectively.
So, will borrowers continue to enjoy low rates while investors get the short end of the stick? Well, considering what the Fed did last week, it’s very likely. Back in 2006, the Federal Funds Rate stood at 5.25%, a far cry from 0.25% we’re seeing today.
But other factors are in play, as well. With no significant threat of inflation, and with prices for big ticket items like oil or a big screen televisions continuing to be low, and with a relatively optimistic economic outlook last week from the Federal Reserve, the stock market is up and the U.S. dollar is down. Both trends bode ill for the bond market and for interest rates, and that won’t change soon.
The Fed is all about boosting the economy these days, and it wants to use cheap money to kick-start it. That’s a big reason for keeping rates low, as higher rates mean it becomes more expensive to borrow money, thus decreasing the chances of getting the economy jumping again.
Until the Federal Reserve sees more of those “green shots’ we’ve been hearing about, bank rates will remain low, home borrowers will be happy, and CD and money market investors will just have to grin and bear it.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.
According to an April 29 statement by the Federal Reserve: “Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.”
The moral of the story is that the Fed has, for the moment, stopped worrying about inflation, and has decided to keep its key federal funds interest rate benchmark at 0.25%. The Fed also said that they won’t be raising or cutting rates anytime soon.
According to the Federal Reserve, “the Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The decision to keep rates where they are, at a historically low level of between 0% and 0.25%, coupled with the Fed’s strategy to buy up to $1.25 trillion in mortgage-backed securities, should keep mortgage rates relatively low for a while longer.
Right now, rates for 30-year-fixed mortgages are at 5.06%, which is approximately 100 basis points lower than the 5.85% rate we saw last year at this time. For a 15-year-fixed rate mortgage, you can do even better, clocking in at 4.77%.
Conversely, in an economic environment where saving has replaced spending in the consumer personal financial mindset, low Federal Funds rates mean low interest rates for things like savings, checking accounts, and bank CDs. Taking CDs as an example, 3-month rates in 2006 yielded 1.76%; while one-year CD rates at the same time yielded 3.81%. Today those yields are much less, at 0.75% and 1.29%, respectively.
So, will borrowers continue to enjoy low rates while investors get the short end of the stick? Well, considering what the Fed did last week, it’s very likely. Back in 2006, the Federal Funds Rate stood at 5.25%, a far cry from 0.25% we’re seeing today.
But other factors are in play, as well. With no significant threat of inflation, and with prices for big ticket items like oil or a big screen televisions continuing to be low, and with a relatively optimistic economic outlook last week from the Federal Reserve, the stock market is up and the U.S. dollar is down. Both trends bode ill for the bond market and for interest rates, and that won’t change soon.
The Fed is all about boosting the economy these days, and it wants to use cheap money to kick-start it. That’s a big reason for keeping rates low, as higher rates mean it becomes more expensive to borrow money, thus decreasing the chances of getting the economy jumping again.
Until the Federal Reserve sees more of those “green shots’ we’ve been hearing about, bank rates will remain low, home borrowers will be happy, and CD and money market investors will just have to grin and bear it.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.
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