The Fed & Me: Understanding the Recent Federal Reserve Report
For first-time homebuyers navigating the market, the Federal Reserve report (released this past February), can be difficult to decipher. Not only is the report full of financial jargon, it also requires a good deal of reading between the lines to understand its impact.
To help explain the recent Federal Reserve report and what it might mean for you, we’ve broken down several key points below:
- There will be no interest rate increases in the short term. Although previous projections showed multiple rate increases in 2019 correlating with continued economic growth, the most recent Federal Reserve report is not quite as optimistic about the direction of the market. The decision to hold interest rates steady rather than raise them signals that the Fed may be preparing for a possible downturn. But, in the short term, it also means that mortgage rates should hold steady.
- The Fed is backing away from previous recession-era policies, like purchasing mortgage-backed securities (MBS) and assets to stimulate the economy through lower interest rates. In the past, the Federal Reserve was able to effectively lower mortgage rates using this strategy because higher market demand lowers the return on investment required to attract purchases. This has the effect of increasing interest rates and borrowing costs for consumers, however it gives the Fed the ability to respond should the market face an economic crisis.
- Slower GDP growth & higher unemployment projections may signal an end to the bull market. According to the Fed report and the U.S. central bank, “recent indicators point to slower growth of household spending and business fixed investment in the first quarter.” Several major economic indicators are pointing to a downturn in the next few years.
Since the report in February, the Federal Reserve has opted to keep rates where they are as of Wednesday, May 1.
If you’re in the market for a mortgage that’s right for you but don’t know where to start, Open Mortgage can help—contact us today.