Low rates here to stay?

The Fed has it decided to keep its target for what's known as the federal funds rate at a range of between 0% and 0.25%.

The central bank slashed the rate to that ultra-low level last month as the severity of the coronavirus crisis was becoming clear.

Things aren't getting better, Fed policymakers said in their statement on Wednesday.

"The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the Fed said.

The Federal Reserve's extreme measures could very well extend for the next decade, says Aaron Brachman, managing director of the Washington Wealth Group in Washington, D.C.

"This may sound dramatic, but think about the economic damage currently taking place," Brachman says. "In one month, we have seen all of the jobs created within the last decade be lost. The longer that this shock goes on, the damage gets exponentially worse."

The impact for mortgage rates

The interest rate maneuvers by the Fed have a direct impact on lending costs that are tied to the prime rate — including credit card interest rates and the rates on home equity lines of credit, or HELOCs.

The Fed's federal funds rate does not have a close connection to the long-term rates on home loans, like 30-year fixed mortgage rates. In fact, there have been times when the Fed has moved in one direction and fixed mortgage rates have gone in the other.

But during these times of COVID-19 chaos, the central bank's record-low rates have been indirectly contributing to big declines in mortgage rates. Hours before the Fed issued its statement, the Mortgage Bankers Association said rates on home loans hit a new all-time low in its weekly survey.

Mortgage rates could go down a bit more — but don't hold your breath waiting to see 0% home loans, says Brachman.

"Mortgage Interest rates are extremely low, they are not going to go much lower in the short term," he says. "If interest rates continue to stay at these low levels for several years, then mortgage rates will likely drift a little lower."

Mortgage rates are unpredictable, so never try to "time the market" and wait for even better rates to come along. If you're looking to buy a home or refinance and spot a great rate that would work well for you, try to lock it so you won't lose out.

Take a look at today's best mortgage rates where you are:

About the Author

Doug Whiteman

Doug Whiteman


Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."