The Federal Reserve decided not to raise rates during their June meeting.
The decision came after two days of deliberation. Instead of raising or lowering the Federal Funds Rate, the Federal Open Market Committee (FOMC) decided to maintain their target rate level of ¼ to ½ percent.
In a statement released after the meeting, the Fed members revealed that they found “that the pace of improvement in the labor market has slowed,” one of the main reasons they decided to maintain the current rate.
The Fed has not raised the Federal Funds Rate at all this year.
Coming into 2016, the Fed was expected to raise the Federal Funds Rate four times during the year. However, the Fed is yet to increase the rate since their December 2015 meeting. Unless the economy gets a jump start later in the year, it is becoming more likely that only one, or possibly no, rate hike will occur in 2016.
One plus side of the Fed’s report is that the housing market is strong. Housing has been fueled by low mortgage rates throughout the year, and low rates should continue to make housing more easily affordable in the coming weeks.
Rate Holds at 0.25%
The main result of the FOMC meeting was that the Federal Funds Rate is being held at its target level of 0.25 to 0.5 percent.
The Federal Reserve meets every six weeks to gauge the health of the economy. If the economy is doing well, they will raise the federal funds rate. If the economy is not doing as well as they would like, they keep the rate constant.
The Fed had decided not to increase the federal funds rate during their April meeting, holding it at a target level of 0.25 to 0.5 percent.
The main focus of the Fed is to “foster maximum employment and price stability.”
The month of May saw a decrease in the unemployment rate, but there was much smaller job growth than expected. The labor market has been slowing down over the past few months, and the Fed took that into account.
Also, inflation is still below the target level of two percent. The Federal Reserve will want to see inflation rise before they commit to increasing the Federal Funds rate again.
The Fed rate had been near 0 – 0.25 percent for the past six years. Rates were dropped during the Great Recession to bolster the economy, and they will be raised once the Fed sees a healthy economy.
After the Fed decided to raise rates in December, investors believed that the Fed rate would continue to increase throughout 2016. But sluggish economic growth in some sectors of the economy has prevented this.
However, the housing market has been strong since the start of the year. The Fed made their stance on the housing market clear, stating that “since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened.”
For home buyers, the decision to maintain the rate will not hurt the housing market. Instead, the decision could lower mortgage rates over the coming weeks, and possibly until the next FOMC meeting.
Mortgage Rates Likely To Drop
Mortgage rates are decided by the demand for mortgage-backed securities (MBS). MBS prices will rise when the economy is weaker, and they will fall when the economy is stronger.
The Fed reaffirmed their stance on MBS, stating that “the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.”
Essentially, the Fed is stating that they support the selling of mortgage-backed securities and low mortgage rates.
Because the Fed has decided that the economy is not growing as quickly as desired, many investors will want to continue buying MBS. If this happens, mortgage rates will stay low, or even fall to even lower levels.
For home buyers, the Fed’s continued stance on MBS is a good thing. This will continue to make MBS one of the safest investment choices and will likely drive mortgage rates lower.
Mortgage rates have fallen as a response to recent Fed meetings. After the last rate hike, back in December 2015, rates responded by falling 40 basis points (0.40%) during the beginning of 2016.
Low mortgage rates have been dominating the market throughout the year, and the Fed’s decision is unlikely to change that anytime soon. Also, a rate hike is becoming unlikely for the Fed’s next scheduled meeting in July.
In other words, mortgage rates could be staying low for most of 2016.
Mortgage rates are near their lowest levels of the past year. Even future rate hikes won’t make rates rise too quickly to take advantage of.
Mortgage rates today are going to be different than they were yesterday. News of the Fed’s meeting will have changed mortgage rates from what they were yesterday. Rates can change throughout the day each day of the week, so it’s best to check exactly where they are.