For consumers planning on taking out an equity loan, refinancing, purchasing a home or shopping for a car, interest rates aren’t going to change much now that Federal Reserve officials have opted to do nothing — for now.
The Fed’s policy makers opted today to keep the short-term, federal funds rate at “near zero,” or 0.0-0.25 percent, the same position it has held since December 2008, the height of the financial crisis. The benchmark inter-bank rate influences common consumer financial products, from credit cards to jumbo mortgages. Wall Street had been engaged in a guessing game as to whether the central bank would announced today the beginning of higher rates.
By leaving the key rate as is, the Fed is maintaining economic growth by preserving the current low cost of credit for consumers and businesses.
If the Fed had raised rates, there are fears that such a move would lower demand for goods and services, which in turn would reduce demand for workers and slow job growth.
The health of the jobs market, however, was seemingly not the Fed’s biggest concern. Instead, the Fed’s Federal Open Market Committee (FOMC) statement and Fed Chair Janet Yellen’s subsequent press conference demonstrated that the policy makers’ primary concern is lower-than-expected inflation — much of it as a result of the drop in oil prices and recent volatility in world markets.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the FOMC said.
This is all good news for prospective borrowers, though, as Freddie Mac said today that average mortgage rates this week held under 4 percent as the world waited on the Fed’s next move. The benchmark 30-year fixed rate averaged 3.91 percent for the week, up from last week when it averaged 3.90 percent.
A year ago at this time, the 30-year loan averaged 4.23 percent.
“Low mortgage rates help to support housing markets, which continue to bring good news,” said Sean Becketti, chief economist, Freddie Mac. “The National Association of Home Builders’ HMI came in above expectations at 62, which is a ten year high.”
Mortgage financing giants Fannie Mae and Freddie Mac have low-downpayment programs for qualified families, which can serve as a buffer against higher mortgage rates later this year or next year, depending on the Fed’s strategy.
“Freddie Mac is keenly aware though that any rate increase will have a larger impact on low-to-moderate income families looking to finance a home purchase,” said Becketti. “We introduced our low down payment program, Home Possible Advantage, specifically to address the challenges faced by these households.”