On Wednesday the Federal Open Market Committee cut the federal funds rate by a quarter of a percent, bringing the key rate at which banks borrow from one another to 2 percent. However, inflation expectations have risen over the past couple of months which may start to drive mortgage rates upward.
Mortgage rates will not likely see any benefit from the Fed rate cut, but inflation fears may actually have rates on the rise in the near future. Long term fixed rate mortgages, such as the 30 year and 15 year, are linked to the 10 year Treasury note which will react negatively to inflation thus raising mortgage rates. Don’t expect to see short term mortgage rates, such as the 1 year and 5 year ARMs, to decrease due to the Fed cutting rates as many investors factored in the rate cut before the cut was announced.
Inflation has begun to become a thorn in the Feds side as energy and other commodity prices continue to increase. Even though the FOMC is uncertain about inflation, they expect inflation to moderate as commodity prices level off and the pressures on resource utilization eases. You can be assured that the FOMC will be keeping a very close eye on inflation developments.
The FOMC has been aggressively cutting rates since September of 2007 in response to the housing market. Wednesday’s rate cut brings the total the federal funds rate cut to 3.25 percent since September. Mortgage rates on the 30 year fixed mortgage have fallen only 0.28 percent since the FOMC began cutting rates. Freddie Mac’s Primary Mortgage Market Survey currently shows the average 30 year fixed mortgage rate at 6.03 percent, the 15 year fixed mortgage rate at 5.62 percent, the 5 year ARM at 5.68 percent and the 1 year ARM at 5.29 percent.
For more news concerning the mortgage industry visit Future Planning Financial at www.fpf-direct.com.
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