The Fed wants to feel more confident about the economy

Facade on the Federal Reserve Building in Washington DC
Paul Brady Photography / Shutterstock

The Federal Reserve has two goals, under its so-called dual mandate. It wants to see "maximum employment" and stable prices.

The economy has been displaying some fairly encouraging signs that it's freeing itself from the COVID-19 quagmire and moving toward the Fed's objectives. But the recovery is "uneven and far from complete," Chairman Powell said during a news conference Wednesday afternoon.

The government's employment report for March showed 916,000 jobs were created last month, blowing estimates out of the water and bringing the unemployment rate down to 6%. That was the lowest in a year.

Powell says the Fed needs to see sustained gains in employment. "We've had one great jobs report — it's not enough," he told reporters.

Another positive economic sign has been the return of inflation, which has been on a steady rise this year after hovering around 1% since July 2020. After hitting 1.4% in January and 1.7% in February, inflation spiked to 2.6% in March.

But the Fed has said steady inflation of at least 2% will be required before it'll be ready to undo its pandemic policies.

The impact for mortgage rates

United States Treasury Savings Bonds
larry1235 / Shutterstock

The Fed's decision to hold its key interest rate — the federal funds rate — close to zero will maintain the low-rate environment that has helped hold down mortgage rates. Officials have indicated they're not likely to raise the federal funds rate before 2024.

The central bank also reaffirmed its commitment to buying $80 billion a month in Treasury bonds, a strategy that's contributing more directly to cheap mortgage rates. The bond buying is keeping bond yields, or interest rates, in check. As those yields rise or fall, rates on fixed-rate mortgages tend to do the same.

"These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses," the Fed says.

After starting the year at 0.93%, the 10-year Treasury yield trended upward until the beginning of April, when it began receding.

Mortgage rates have been moving in similar fashion this year: They climbed for a few months but have slid in recent weeks and are now back at some of the lowest levels ever seen.

Thirty-year fixed-rate mortgages were averaging just 2.97% last week, according to the long-running survey from mortgage giant Freddie Mac.

How to take advantage of today's low rates

Young couple meeting financial advisor for home investment
goodluz / Shutterstock

With mortgage rates leveling off, and the Fed not pushing them any higher, homebuying activity in the U.S. could grow even more intense.

"Housing statistics for the next year should be off-the-charts hot as the rates stay low," says Corey Burr, senior vice president at TTR Sotheby's Realty in Washington, D.C.

If you're buying a home or refinancing, you'll need strong credit to land a low mortgage rate. To see how your credit score stacks up, you can easily check it for free. It’s good to know where you stand sooner rather than later, in case your credit needs a little TLC.

Once it’s time to seek out a lender, don't be too quick to go with the very first one, because you may be able to do better. Comparing at least five loan offers can help you find the best rate available in your area for people with a similar credit score.

If you're trying to reduce the overall cost of homeownership, don’t stop at your mortgage rate. Are you sure you’re paying the lowest price on homeowners insurance? Comparing insurance providers takes only a few minutes, and could save you hundreds of dollars a year.

Then, to help with your monthly loan payments, you might download a popular app that allows you to earn returns in the record-shattering stock market — merely by investing "spare change."

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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