Fed: Economy still needs help

Vintage US dollar. Federal reserve system.
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Fed officials say they're in no rush to hike interest rates because they want to see more strength in the economy.

"Indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak," the central bank's policy panel said in a statement. "Inflation continues to run below 2%."

At a news conference following the meeting, Powell said the central bank remains wary of COVID-19 as new strains pop up.

"We’re clearly on a good path with cases coming down, but we're not done and I'd hate to see us take our eye off the ball before we actually finish the job," Powell told reporters. He added that the economy is likely to make faster progress toward the Fed's employment and inflation goals — "but we’ll have to see it first."

In addition to keeping its benchmark federal funds rate immobilized for the time being, the Fed also plans to continue buying at least $80 billion in Treasury bonds and $40 billion in mortgage-backed securities each month.

What does this mean for mortgage rates?

Up arrow and many houses. Growth in real estate prices market. Buying and selling house.
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Those purchases should be holding down the interest rates on Treasuries, but Treasury yields have been skyrocketing as investors have grown more optimistic about the economy — and more wary of inflation. The yield on the 10-year Treasury note heavily influences the rates on mortgages.

Unlikely the prime rate and other interest rates that are closely tied to what the Fed does, the central bank has only an indirect impact on mortgage rates.

On Wednesday, 10-year Treasury yield reached its highest level since January of last year, but then eased following the Fed's announcement. Further declines would be helpful for home borrowers.

Mortgage rates started the year with a record low, as the average for 30-year fixed-rate loans dropped to 2.65% the first week of January, according to mortgage giant Freddie Mac. But rates have climbed steadily and sharply ever since, and are averaging 3.09% this week, Freddie Mac said on Thursday.

Keep in mind, that's an average — rates below 3% are still out there, if you look for them.

Mortgage rates may keep climbing, despite the Fed's moves

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Though the Fed is making all the right moves to help keep mortgage rates low, other factors are pushing them higher. With average rates rising rapidly, borrowers should grab an attractive rate when they see one.

"It’s just possible that rates will fall again. But that currently looks unlikely," writes Peter Warden, editor of The Mortgage Reports. He's recommending that his readers lock a rate now, whether they're looking to close on their loan in seven days or 60 days.

If you're in the market for a mortgage, to buy or refinance a home, gather and compare at least five loan offers to find the best rate available in your area and for a person with your credit score. A few months or even weeks from now, rates may look much less enticing.

Haven't seen your credit score in a while? Today, it's very easy to take a peek at it for free.

And while you're looking for deals, why stop with your mortgage rate? You may be able to save hundreds of dollars a year on your homeowners insurance simply by doing a little more comparison shopping.

About the Author

Clayton Jarvis

Clayton Jarvis


Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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