Fed is being guided by the virus

headquarters of the Federal Reserve in Washington, DC, USA,FED
MDart10 / Shutterstock

At the end of a two-day meeting on Wednesday, Fed policymakers released a statement saying they're leaving their benchmark interest rate — the federal funds rate — unchanged. The rate has been close to zero since last March, when the central bank slashed it in response to the pandemic's devastating economic effects.

"The path of the economy will depend significantly on the course of the virus, including progress on vaccinations," the statement says.

But things have been moving in the wrong direction, writes Diane Swonk, chief economist at the accounting firm Grant Thornton.

"The surge in cases, hospitalizations and fatalities since the last meeting has been staggering," Swonk says. "At the same time, uncertainty about the containment of new, more contagious variants of the vaccine has increased."

It's all good for mortgage rates

Bag with the money and the word Mortgage interest rates and arrow to dow, representing falling mortgage rates.
Andrii Yalanskyi / Shutterstock

Along with keeping its thumb on the federal funds rate, the Fed announced it would expand its bond-buying program by purchasing $80 billion in Treasury bonds each month and at least $40 billion in mortgage-backed securities. Those are investments made up of bundles of home loans.

The central bank's actions don't directly impact mortgage rates, but they inevitably do move the needle on interest rates across the board.

Mortgage rates tumbled after the bank first cut rates, and since then have been on an extended downward streak. The average for a 30-year fixed-rate mortgage hit record lows 16 times in 2020, according to the long-running weekly survey from mortgage giant Freddie Mac.

Rates last week were averaging 2.77%, the survey said, not far above the most recent all-time low.

How to score ultra-low rates

Concentrated attentive millennial spouses sitting on couch at home discussing whether to refinance their mortgage.
fizkes / Shutterstock

With the Fed keeping interest rates down, low mortgage rates aren’t going anywhere, right?

Not so fast. Even with the central bank’s support, other factors — like the potential for a big boost in government spending against COVID — could push rates higher in the coming months. Freddie Mac is forecasting that 30-year rates will rise close to 3% this year.

In the meantime, you can still land a super-cheap mortgage rates by shopping around. If you compare loan offers from different lenders, you can save thousands of dollars in lifetime interest on your loan.

Don’t stop there — you can keep on saving by comparison shopping for the lowest price on homeowners insurance for the coverage you need.

About the Author

Ethan Rotberg

Ethan Rotberg


Ethan Rotberg is a staff reporter at MoneyWise. His background includes nearly 15 years as a writer, editor, designer and communications professional. He loves storytelling, from feature writing to narrative podcasts. His work has appeared in the Toronto Star, CPA Canada and Metro, among others.

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