The Federal Reserve is a powerful central bank that sets monetary policy for the U.S. economy. This includes setting interest rates, which have an effect on mortgage rates. When discussing rate movements associated with the Federal Reserve meeting, it's important to note that there are two distinct types of rate movements: expected rate movements and unexpected rate movements.
Expected rate movements occur when investors believe they have a good idea of what the Federal Reserve will do at their meeting. In this case, mortgage rates may rise or fall based on the expectations of the market ahead of time. Generally, if the market believes that the Fed will raise interest rates, mortgage rates will go up even before the Federal Open Market Committee (FOMC) meeting. If the market believes that the Fed will keep rates unchanged, mortgage rates will remain relatively stable.
Unexpected rate movements occur when the Fed does something other than what was expected. In this case, mortgage rates can move significantly up or down in response to the Fed's decision. For example, if the Fed decides to raise interest rates more than expected, mortgage rates could jump higher in response. Conversely, if the Fed decides to keep rates unchanged or lower than what the market had expected, mortgage rates could decrease.
In addition to expected and unexpected rate movements, it's important to understand the impact of economic news releases on mortgage rates. Any economic news release that affects the markets' view of the Fed's plans for monetary policy can cause mortgage rates to move. For example, if a report shows weaker than expected economic activity, markets may begin to expect the Fed to keep interest rates unchanged or even lower them. This could cause mortgage rates to go down even before the Fed meeting. On the other hand, if a report shows stronger than expected economic activity, markets may start to expect the Fed to raise interest rates, which could cause mortgage rates to move higher before the FOMC meeting.
Overall, it is important to understand that the Federal Reserve has a large impact on mortgage rates. The Fed's decisions and the markets' expectations of those decisions can cause mortgage rates to move in either direction. Paying attention to economic news releases and the FOMC meeting can help investors predict when these rate movements will occur.
The Federal Reserve is a powerful central bank that sets monetary policy for the U.S. economy and influences mortgage rates. When the Fed meets, mortgage rates tend to move in response, either as a result of expected rate movements or unexpected rate movements, meaning either the market is expecting a certain policy announcement or the actual announcement differs from market expectations.
Expected rate movements occur when investors have a good idea of what the Fed will do. Generally, if the market believes that the Fed will raise interest rates, mortgage rates will go up even before the FOMC meeting. If the market believes the Fed will keep rates unchanged, mortgage rates will remain more or less steady. Unexpected rate movements occur when the Fed does something other than what was expected. Mortgage rates can spike or dip in response to unexpected Fed decisions.
It's also important to consider the impact of economic news releases on mortgage rates. Reports showing weaker than expected economic activity usually brings down mortgage rates, as the market expects the Fed to keep interest rates low. Reports showing stronger than expected economic activity, by contrast, tend to increase mortgage rates as the market anticipates a rate increase from the Fed.
Overall, mortgage rates can shift in response to both expected and unexpected decisions of the Fed. Although some of the movements can be predicted based on economic data, there is always an element of risk involved when investing in mortgages. It pays to pay attention to economic news releases and the FOMC meeting to get an idea of when rate movements are likely to occur.
This article was contributed on Sep 28, 2023
