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June 18, 2013

How the Federal Reserve’s FOMC meeting will impact mortgage rates, stocks, and the economy

by Rylan Stewart
The Federal Reserve (1)

Over the past few months, the market has moved on speculation. Soon, investors will get some measure of clarity that will have instant ramifications for mortgage rates, stocks, and the bond market.

The Federal Open Market Committee (FOMC) meeting on Tuesday, June 18 and Wednesday, June 19 will decide policy on the quantitative easing policy.

The outcome will impact everything from stocks to mortgage rates and the housing market.

“The markets are begging the Federal Reserve to provide some clarity on the future of Quantitative Easing,” said Central Coast Lending owner Daniel Podesto. “When will they begin to taper the bond purchases? What is the timeline to completely phase out of Quantitative Easing?”

The Central Coast Lending newsroom covers the latest local and national real estate, mortgage, and economic developments. Questions? Email us or comment below.

Quantitative Easing (QE) is a monetary policy adopted by the Fed to stimulate the economy and prop up the housing market. By purchasing $85 billion per month in longer-term U.S. Treasury bonds and mortgage-backed securities, the Fed has kept borrowing rates (and especially mortgage rates) low.

The Fed was explicit in saying that it wanted to see specific economic improvements before winding down the policy. Are we there yet?

Markets seem to think so.

Mortgage rates jumped throughout the month of May, as the U.S. Treasury bond market shifted. Investors began to leave the market in higher numbers, anticipating that less QE would leave them with expensive, low-yielding bonds that would be hard to move. In other words, they were getting out while they could.

[Related: The relationship between mortgage rate movement and the bond market]

Wall Street“I believe the May market movement, including the ½ percent increase in mortgage rates, was the market’s bet that the Fed announces tapering plans to begin this year,” said Podesto.

The market has had its eyes fixed on the Fed, to the extent that May’s middling employment report boosted stocks due to optimism that the news would keep the Fed in the economic stimulus business.

Similarly, expect news from tomorrow to have an outsized impact on the stocks, bonds, and mortgage rates.

“If the Fed makes no mention whatsoever, or implies that tapering is still a long way off, stocks will move higher and mortgage rates will move lower,” said Podesto.

Should the Federal Reserve clarify that easing could begin during the end of 2013, mortgage rates will continue to rise.

Check in with here – www.CentralCoastLending.com – tomorrow for full coverage of the FOMC meeting.

 


Central Coast Lending is a California mortgage brokerage based in San Luis Obispo County. With offices in San Luis Obispo, Morro Bay, Paso Robles, and Arroyo Grande, Central Coast Lending is the top source for Central Coast mortgage, real estate, and home loan needs. To see why using a broker offers lower rates and superior service, click HERE. For a free, hassle-free online pre-qualification click HERE or call 805.543.LOAN to talk to one of our expert loan officers.

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