These actions are intended to encourage more money into the economy, inducing businesses to invest and consumers to spend and borrow. Since this news was released, we received lots of questions about what this means for mortgage rates. Many people are wondering if the drastic cut in the Fed Funds Rate means a big drop for mortgage rates.
The answer of course is not simple; however, we’ll try to make things easy by providing a little insight. First, it’s important to recognize that for the past several years, mortgage rates have been historically low to begin with as our country recovered from the Great Recession.
Over the course of the past year, we entered into the longest period of economic expansion in US history. To help minimize inflation and keep the economy strong, the Federal Reserve Bank began lowering rates at the beginning of 2019.
At the same time, the 10-year treasury rate, which is closely tied to mortgage rates, also began to drop as long-term confidence in the economy waned. These two economic measures pushed mortgage rates down to all-time lows. Now with the Coronavirus upon us, and the world economy deeply impacted, the federal government is doing everything it can to keep the financial markets healthy.
In fact, in the past couple weeks, we’ve all seen the volatility in the stock market as businesses are temporarily suspending operations in response to the pandemic. By lowering rates, the Fed is strategically working to keep capital moving as long-term economic uncertainty grows. While the Fed’s actions don’t directly equate to lower mortgage rates, they do help minimize economic strain and suppress the market’s natural tendency for rates to rise.
It’s important to remember mortgage rates are influenced by a number of indicators like employment, GDP (economic growth), exchange rate, inflation and so much more. Lowering the Fed Rate helps curb the volatility; however, it doesn’t eliminate it.
Moving into a period-of-time like no other before, our goal remains to provide the most competitive rates possible, along with the highest quality customer service and community support. As a mutual bank and portfolio lender, we remain fully committed to our mission of improving the quality of life for you and our neighbors.