It’s Fed Day! [LIVE POST]

In a couple of hours, the FOMC will wrap up their two-day meeting with an announcement on their decision on if they are going to make adjustments to the Fed funds rate. The Fed funds rate does not directly affect mortgage interest rates (except for HELOCs) however, it does influence the direction of mortgage rates. This is because the Fed’s decision is based on the level of inflation. Mortgage rates react negatively to inflation as mortgage rates are based on bonds (mortgage-backed securities/MBS). So, when the Fed raises the funds rate or keeps the rate unchanged due to inflation being too high, mortgage rates tend to move higher. If inflation is in line, we often see mortgage rates improve.

It’s not just the announcement today that will catch the interest of bond traders, it’s what the Fed will say with the prepared announcement, answers to the press, prepared supporting documents and other commentary from FOMC members that may impact mortgage interest rates.

As I’m writing this portion of this post (8:40 am PST), MBS are up about 47 basis points. (If you follow my weekly mortgage updates, this means that we currently have a big green candlestick on the charts which translates to lower mortgage rates). This is because May’s CPI (Consumer Price Index) reported this morning that inflation is showing signs of cooling. Yay! I’m glad this report was released prior the Fed’s announcement and I obviously hope that we continue to have reporting showing inflation is calming.

It is widely anticipated that there will be no change to the Fed funds rate today. The Fed will be releasing the Statement of Economic Projections which includes their “dot plot” that shows when the fed members project moving the funds rate (most likely lowering).

I will continue to update this post throughout the day. Stay tuned!

UPDATE 11:00 AM: The Fed leaves rates unchanged, stating: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.”  MBS (30 year 6%) is trending lower around 36 basis points.