The Fed Minutes...How Does It Affect Mortgage Rates?

Mortgage rates fell after the Federal Reserve released its April 28-29, 2009 meeting's internal notes Wednesday.

Officially known as "Fed Minutes", the report is an in-depth account of the Federal Reserve's last get-together, detailing the discussions and decisions that create our country's monetary policy.

It's the lengthy companion to the Federal Reserve's brief, post-meeting press release.

For comparison's sake, the Federal Reserve's April 29 announcement contained 383 words. The minutes of that same meeting held 5,754 words. The extra words offer extra details about what the next monetary steps might be for the nation's policymakers.

This is a big deal to markets because investors are always looking for clues about what's next -- especially considering how the April Fed Minutes showed that group discussed increasing its $1.25 trillion mortgage market commitment to something bigger, possibly another $500 billion.

Remember that the Fed's mortgage-buying program is largely credited with keeping mortgage rates low this year. If there's more buying ahead, that should help rates stay low a while longer. Mortgage rates fell Wednesday in anticipation of a move like that. For now, though, the Fed Minutes are just talk.

As economic conditions change later this year, so will the Federal Reserve's stance.

Interpreting What the Fed Said - December 16, 2008

The Federal Open Market Committee voted to lower the Fed Funds Rate by at least three-quarters percent today. The benchmark rate now rests in a range of 0.000-0.250 percent, the lowest Fed Funds Rate recorded levels in history.

And while the rate cut matters to Americans, it was more just a show of force.

The bigger news is that the Federal Reserve plans to "employ all available tools" to prevent the current recession from turning into a depression.

One such tool is to buy billions of dollars of mortgage-backed bonds. In November, when the Fed did this the last time, it started the Refi Boom we're in. No surprise, therefore, that mortgage markets rallied late in the day, leading conforming mortgage rates lower.

Jumbo, super-jumbo and FHA mortgage rates did not get similar treatment.

Also worth noting: In their statement, the FOMC's voting members fingered inflation as a diminishing economic threat. In the short-term, this is probably true. In the long-term, however, it's unclear.

What we learned today is that the Fed's "available tools" really does include the Kitchen Sink. A breadth of options like that should serve the economy well throughout the early part of 2009.

However, we can't forget that today's support for the housing market was 17 months in the making and the Fed may be trying to unwind it in 2.

Reviewing the massive stimulus since October, there's now a strong possibility that once the economy starts to recover, it will recover right into runaway inflation.

That in all probability is what's ahead for the U.S. and inflation is awful for mortgage rates.