The Federal Reserve Statement In Simple English

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is "leveling off" and that financial markets continue to improve.

The change in verbiage is the rosiest from the Fed since the start of the recession and it may signal that the downturn's end is near.

That said, the Fed highlighted lingering economic soft spots that could still impact a recovery through the end of 2009 and into 2010.

1.Ongoing job losses
2.Reduced "housing wealth"
3.Tight credit conditions

Furthermore, rising energy costs remain a threat to inflation.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.

Market reaction to the Fed's press release is muted. With no real change in message and a basic confirmation of what most investors already knew, Wall Street sees no reason to panic. Mortgage rates are unchanged.

The FOMC's next scheduled meeting is September 22-23, 2009.

Mortgage Rates Drop, Bernanke Offers Us His "Exit" Strategy

Mortgage markets rallied Tuesday while Fed Chairman Ben Bernanke gave his semi-annual testimony to Congress.

By the time the day was over, some conforming mortgage rates were down by as much as 0.250 percent.

One of the leading causes for the market rally was Chairman Bernanke revealing an "exit strategy" from its massive market stimulus.

Until Tuesday, the Fed hadn't gone into much depth about means and methods by which it would unwind its interventions. In addition to penning a widely-read Op-Ed piece in the Wall Street Journal Tuesday, Bernanke testified to Congress that the Federal Reserve has a viable "exit strategy".

Wall Street was pleased to hear it.

The specter of long-term inflation has spooked the mortgage markets off-and-on since the start of the year. It's one of the reasons why mortgage rates have been so jumpy, and why they crossed 6 percent last month. Inflation is terrible for mortgage markets.

So, with the fear of inflation subsiding -- at least temporarily -- mortgage rates sunk Tuesday.
With any bit of luck, momentum will carry rates lower today and through the rest of the week. But, don't get greedy. Mortgage markets are notoriously fickle and one "bad" statement from the Fed Chairman could cause rates to rise right back up.

Bernanke's complete Tuesday testimony can read online at the Federal Reserve website.

The Federal Reserve Statement In Simple English

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.

The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is not slowing with the same speed versus just two months ago and that financial markets, in general, are improving.

These are two signs that the country may be emerging from recession, if it hasn't already.

The news isn't all good, however. The Fed made a point to highlight the potential hazards the nations faces on its path to economic recovery:

•The prices of energy and commodities have been rising

•Job losses are still mounting nationally

•Businesses are reducing capital expenditures

Also in its statement, the Fed acknowledged a plan to hold the Fed Funds Rate near zero percent "for an extended period" and a re-commitment to the U.S. Treasury and Mortgage Bond markets.

Market reaction to the Fed's press release has been muted.

With no new stimulus and no new "tools" to spur the economy unveiled, Wall Street is business as usual. Mortgage rates are unchanged post-FOMC today.

The FOMC's next scheduled meeting is August 11-12, 2009.

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.

The Federal Reserve Actions In Plain English

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent. The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it's not happening with the same speed as in prior months. Household spending is stabilizing and financial markets are "easing".

Nevertheless, threats to the recovery are everywhere with the following items on the Fed's short list:

* The growing ranks of unemployed workers
* The reduction of housing wealth nationally
* Reduced inventories and investment from business

Furthermore, the FOMC fingered today's inflation levels as too low to support economic growth.

This justifies the Fed's plan to hold the Fed Funds Rate near zero percent "for an extended period".

For home buyers and refinancing homeowners, today's press release was not favorable.

After the Fed's announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off. Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.

The FOMC's next scheduled meeting is June 23-24, 2009.

How Will The Fed Meeting Today Affect Mortgage Rates?

The Federal Reserve adjourns from its two-day meeting this afternoon. It's one of 8 scheduled meetings each year for the Federal Open Market Committee.

Like all FOMC get-togethers, the purpose of the meeting is to discuss financial and economic conditions in the U.S., and to make new policy to stimulate or retard economic growth, when necessary.

The Federal Reserve's main tool for reaching this goal is the Fed Funds Rate.

When the Fed lowers the Fed Funds Rate, growth is stimulated. When the Fed raises it, growth is slowed. The Fed has other tools at its disposal, of course, but the Fed Funds Rate is the most common and most well-known.

Fed meetings are highly anticipated events to markets because the central bank's can change the course of the U.S. economy with just a statement. As a result, traders tend to get jittery in advance of a Fed press release which often leads to erratic trading patterns.

With the economy continuing to teeter between growth and recession, the Fed has pledged to hold the Fed Funds Rate steady for as long as necessary. Therefore, it won't be what the Fed does that could move mortgage rates this afternoon; it'll be what the Fed says.

Post-meeting, the Federal Reserve will publish a press release summarizing the current economic conditions and the biggest longer-term risks that exist. If growth and inflation are identified as threats for late-2009 and 2010, mortgage rates will rise. This is because inflation is linked to higher mortgage rates.

The Fed's press release hits the wires at 2:15 PM ET today. If you're the cautious type, consider locking your mortgage rate prior to the release.

What Will The Federal Reserve Do Next?

The Federal Reserve meets next week for a policy-setting meeting.

It's one of 8 scheduled Fed meetings this year in which the Federal Open Market Committee votes on whether to raise, lower, or leave unchanged the Fed Funds Rate.

Based on data compiled by the Federal Reserve Bank of Cleveland, Wall Street's expectations of the Fed Funds Rate post-meeting are as follows:

*97 percent probability that the Fed Funds Rate holds at 0.000 to 0.250%
*3 percent probability that the Fed Funds Rate is raised to 0.750%.
*There is no expectation for a 0.500% Fed Funds Rate.

The Fed Funds Rate influences the economy by changing borrowing costs for banks, businesses, and consumers. When the Fed Funds Rate is lowered, "cheaper money" is meant to speed the economy forward. When the Fed Funds Rate is raised, by contrast, costly borrowing tends to slow the economy down.

Changes to the Fed Funds Rate do not directly correlate to changes in mortgage rates.

Because Wall Street is nearly unanimous in its Fed Funds Rate prediction, though, expect the market's FOMC focus to be on what the Fed says rather than what it does.

If Ben Bernanke & Co. express concerns about long-term inflation and the need to contain growth, mortgage rates will rise in response. On the other hand, if the Fed says that growth is expected to be within a tolerable range, mortgage rates should idle.

In other words, there's little benefit in waiting for the Fed's meeting to make your "Float or Lock" mortgage rate decision. In a worst-case scenario, mortgage rates rise. In a best-case scenario, they likely stay the same.

The Fed's two-day meeting adjourns Tuesday, April 29 at 2:15 PM ET.

What Did The Federal Reserve Do? In Plain English

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today, within the target range of 0.000-0.250 percent. This doesn't mean the Fed stood pat, however.

On plan to resurrect the economy using "all available tools", today, the Fed announced a new, $1.5 trillion round of fiscal support for the treasury and mortgage markets.

The stimulus will likely be Thursday morning's headline story.

In its press release, the FOMC touched upon a few of the prevailing economic issues, using these points as a legitimizing backdrop for its newest debt load:

* Job losses and wealth loss are dragging down consumer spending
* Some U.S. trading partners are falling into recession
* Businesses are cutting back on investment and inventory

Of interest is that the FOMC said today's inflation levels may be too low to support economic growth at all. This condition is more commonly called deflation. The Fed's latest actions, therefore, may be a deliberate attempt to induce inflation through unprecedented borrowing.

For home buyers and potential refinancers, this is terrific news -- at least in the short-term. By introducing new demand for mortgage bonds, the Fed will help pressure mortgage rates lower.

Already this afternoon, mortgage rates fell and they will continue to fall until the market reaches a new equlibrium.

After the Fed's last intervention, markets reached their balance point in about a day-and-a-half.

The Federal Reserve Is In Session. What Will That Mean To Mortgage Rates?

The Federal Open Market Committee begins a scheduled, 2-day meeting today to discuss the country's monetary policy. As is custom, the group will issue a press release to the markets when it adjourns.

The post-meeting press releases are among the most powerful market-moving events of the year.

It's not the Fed's actual policy changes that causes markets to move, though.

These changes can be predicted and traded -- and, therefore, hedged -- on Wall Street using Fed Funds Rate Futures. For example, Wall Street predicts with 97% certainty that the Federal Reserve will not make a policy change at this time.

As opposed to than policy change, it's the verbiage of the FOMC's press release that can really move markets. This is because the press release is a clear-eyed look into what the Federal Reserve thinks of the United States economy -- its strengths, its weaknesses, and its threats.

After its January 2009 meeting, the FOMC's press release said:

* The economy has weakened further
* Employment has declined steeply
* A gradual recovery may come later in 2009

Since that meeting, though, a number of high-profile economists, including Fed Chairman Ben Bernanke, have said the likelihood of economic recovery has increased for late-2009.

This is why tomorrow's FOMC press release is so important. It will contain clues about the Federal Reserve's next steps and current psyche. Undoubtedly, it will make a significant impact on the mortgage markets.

In general, when the Fed alludes to inflation and stronger growth, mortgage rates rise. Talk of a recovering economy and rising oil prices in tomorrow's press release, therefore, would likely raise rates from their current low levels towards levels not seen for 6 months.

In the end, it's what the Fed says that matters more than what the Fed does. The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

Bernanke Speaks

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Mortgage markets lost a little bit of ground last week, edging mortgage rates higher in a week marked by the largest stock market gains since November.

Once again, mortgage rates couldn't sustain a rally of more than 5 days. Not since late-2008 have mortgage rates managed to fall two weeks in a row.

Last week's market was impacted by three distinct factors:

Bank balance sheets weren't as bad as feared
Discussion started on new bank valuation methods
Traders got optimistic that "the worst is over"
The rally will likely continue into this week, too. This after the 60 Minutes interview with Ben Bernanke in which the Fed Chief said he won't let big banks fail and that the recovery will likely begin later this year.

It's the first interview with a sitting Federal Reserve Chairman in history.

Coincidentally, the Federal Reserve will be in the spotlight this week as it concludes a two-day meeting Wednesday after which the Fed will issue its standard, post-meeting press release at 2:15 P.M. Although it's not expected to make Fed Funds Rate changes, the markets will closely watch the Fed's language for clues about the next phase of monetary policy.

In general, when the Fed indicates that inflationary pressures may build, mortgage rates rise. Moreover, in the above interview, Bernanke alluded to such inflation and the need to control it in the future.

Despite the small rise in rates last week, mortgage rates remain low and favorable for high-credit scoring borrowers. Volatility is still a factor, however, so if you're nervous about rates rising, it may be best to lock early in the week -- before the Fed's Wednesday announcement.

Explaining What The Fed Did In Plain English

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today. It remains within a target range of 0.000-0.250 percent.

In its press release, the FOMC reiterated most of the key points from its December 2008 statement, including:

* The U.S. employment outlook continues to deteriorate
* Consumers and businesses continue to cut spending
* The housing sector is still showing weakness

In addition, the FOMC addressed the "extremely tight" credit conditions for U.S. households and business, even as it said some financial markets are showing signs of improvement.

For Americans needing new mortgages or other forms of credit, it may mean that getting approved gets easier sometime late this year.

Most importantly, the Fed's press release again mentioned the policy-setting group's intention to "employ all available tools" to promote economic growth. This includes the open-market purchasing of mortgage-backed debt that has helped fuel the current Refi Boom. The Fed indicated a willingness to extend the program beyond the initial $500 billion, if necessary.

For each of the Fed's interventions, though, there is a trade-off.

Buying securities costs money and the Fed -- literally -- comes up with the cash by printing it. The extra supplies devalue the U.S. dollar which, if left unchecked, can cause the Fed's plan to backfire in the form of runaway money supply-led inflation. The Fed is aware of this risk and is pledged to monitoring it closely.

Overall, mortgage rates worsened today after the Fed's statement.

What The Fed's Actions May Do To Interest Rates Today

The Federal Open Market Committee adjourns from its 2-day meeting today.

The monetary policy-setting group is expected leave the Fed Funds Rate within its current target range of 0.00-0.250 percent.

This is the lowest range for the Fed Funds Rate in history and, frankly, there isn't much room left to go lower. Therefore, markets aren't really concerned about what happens to the benchmark lending rate today.

Instead, markets will focus on the Fed's ideas to revive the U.S. economy.

In its post-FOMC press release last month, the Federal Reserve pledged to "employ all available tools" to get the economy moving in the right direction. At the time, some of those tools were already in play, including making direct loans to large companies and buying bad debts from commercial bank balance sheets.

And since that meeting, the Fed has put its money where its press release is.

Early this year, the Fed started a program to buy $500 billion in mortgage-backed debt and those ongoing purchases are part of what's keeping mortgage rates relatively low. The Fed has since made it easier for member banks to borrow money, too.

Each of these steps is meant to pour gas into the U.S. economic engine and the Fed is pledged to keep trying new approaches until something works. And this is what mortgage markets will be concerned with today.

If the Fed's next stimulus plan is deemed ineffective or too costly for its own good, mortgage markets will likely sell off, causing mortgage rates to rise. The jump could be somewhat sudden because Fed announcements are often met with emotional, knee-jerk reactions.

By contrast, if the Fed's next steps are deemed on target, expect mortgage rates to fall only slightly. To some extent, this outcome is already priced into rates as of this morning.

The FOMC's official press release hits at 2:15 PM ET.

Looking Back and Looking Ahead: January 26, 2009

Mortgage markets deteriorated last week on the heels of weak economic data and uninspiring corporate earnings.

Mortgage rates rose for the second week in a row. They're now measurably higher than the low point set 3 weeks ago.

For mortgage rate shoppers, though, last week's most important stories weren't necessarily last week's most reported stories; the most obvious of which was soon-to-be Treasury Secretary Tim Geithner's assertion that China may be manipulating its currency.

This assertion poses risks to mortgage rates because China is one of the largest buyers of U.S. mortgage-backed bonds. Its ongoing bond buys helps keep mortgage rates down. But an angry China is less likely to buy U.S.-backed debt and that would pressure mortgage rates hgiher. Said China of the Geithner remarks, we're angry.

Other mortgage rate-altering stories included:

Corporate weakness at GE, Microsoft, and nearly every U.S. bank
Concerns that political in-fighting could derail a stimulus plan
Mounting job losses in nearly every economic sector

In addition, just to show how backwards markets are right now, in "ordinary" times, economic weakness often leads mortgage rates lower. In this market, however, it's having the opposite effect. Whenever the economy looks sour, mortgage rates seem to rise.

Americans in want of a mortgage have been at the mercy of Wall Street's fickle sentiment lately. It's a nerve-racking place to be.

This week, markets hope to be calmed. There's a handful of news releases including Existing Home Sales, New Home Sales and consumer confidence surveys that will help paint a clearer picture of the economy, but the Federal Reserve's 2-day meeting should steal the spotlight. The Federal Reserve is expected to hold the Fed Funds Rate at its current range of 0.000-0.250 percent.

However, the Fed Funds Rate is somewhat of an afterthought this week. Markets are more concerned with what the Fed will be doing to loosen bank lending nationwide.

Markets will evaluate the Fed's response and if they deem the stimulus to be too large (or too small), mortgage rates should rise. If the Fed's moves are "just right", look for rates to fall.

The Federal Open Market Committee adjourns at 2:15 P.M. Wednesday.

Fed Speak - What Did They Say?

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today. The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has "slowed markedly", pointing to three main causes:

* Consumer spending is falling
* Business equipment spending is falling
* Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an "intensification" of the current financial market turmoil.

The announcement's 4th paragraph is noteworthy, too. It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time. It does note, however, that if markets don't improve in good time, the committee will "act as needed".

In the wake of the announcement, stock markets rallied. Investors liked what the Fed had to say and it drew funds into the stock market from all corners of Wall Street.

Unfortunately for mortgage rate shoppers, one of those corners happened to be the mortgage bond market.

The exodus from bonds caused mortgage rates to rise.

It's a common misconception that the Federal Reserve controls mortgage rates and today's market action should help dispel that myth. As the Fed Funds Rate falls back near its 50-year low, mortgage rates are bumping up against a 3-year high.

Volatility Will Continue In The Markets, No Matter What Happens To The Fed Funds Rate Today

The Federal Open Market Committee adjourns from its scheduled 2-day meeting today at 11:15 P.M. PDT and the markets are eagerly awaiting the central bank's press release.

In it, Fed Chairman Ben Bernanke is expected to address the U.S. economy, the future of credit, and the new Fed Funds Rate.

It's this last point to which mortgage rate shoppers should pay attention -- when the Fed Funds Rate falls, mortgage rates tend to rise.

The inverse relationship between mortgage rates and the Fed Funds Rate is based on the idea that cuts to the Fed Funds Rate are designed to add gas to U.S. economic engine.

In theory, over time, Fed Funds Rate cuts work to improve Corporate America's balance sheets, thereby rewarding shareholders. Therefore, when the Fed Funds Rate falls, or is expected to fall, investors often rush to buy stocks before their prices get bid up. Part of that process, of course, includes selling the "safe" parts of their portfolio which are usually loaded with mortgage-backed bonds.

If you were looking for a reason why mortgage rates tanked Tuesday while the Dow Jones added 11%, now you have it.

The Fed Funds Rate stands at 1.500% and markets are split about how far the FOMC will cut it this afternoon:

* A "pause" is expected by 2 percent of traders
* A 0.250% rate cut is expected by 5 percent of traders
* A 0.500% rate cut is expected by 45 percent of traders
* A 0.750% rate cut is expected by 40 percent of traders
* A 1.000% rate cut is expected by 8 percent of traders

Without a consensus opinion among traders, no matter what the Fed does today, a lot of investors will be forced to rebalance their portfolios to account for their "bad bets". This will add to market volatility for sure.

Mortgage rates are calm this morning. The calm likely won't last. If you are floating your mortgage rate and want to avoid additional risk, consider locking your rate prior to the FOMC press release.

The Federal Reserve made an "emergency rate cut" this morning, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The Federal Reserve made an "emergency rate cut" this morning, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy.

On a broad scale, therefore, we won't know if the cut truly "worked" until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent today, too. That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates are rising today.

The Fed's actions today sparked optimism in some corners of Wall Street and money is now flowing into the stock market at the expense of bonds. Because mortgage rates move in the opposite direction from bond demand, mortgage rates are higher this morning.

As always, mortgage markets and mortgage rates remain on edge. Therefore, rates are subject to change. And quickly. If you see a rate and payment you like, be ready to commit to it because it likely won't last long.

Translating Fed Speak Into English

For the third straight meeting, the Federal Open Market Committee adjourned with the Fed Funds Rate at 2.000 percent.

This was in light of the fact that oddsmakers had predicted with 100% certainty that the Fed Funds Rate would drop .25%.

In its press release, the Fed alluded to the myriad of pressures on the U.S. economy:

* On Wall Street: Strains have "increased significantly"
* On Employment: The workforce has "weakened further"
* On Household Spending: It's "softening"
* On Inflation: It's "been high"

However, the Fed believes that the collective impact of these forces will eventually be muted by both market forces, and by prior rate cuts.

As recently as last August, let's remember, the Fed Funds Rate was 5.250 percent and the last thing the Fed wants to do is to overstimulate the economy. Too many rate cuts turns up the heat, and before we know it, the Fed is the Court Jester.

But the Fed does remain on alert and ready to act as needed.

However, the most important statement in the Fed's press release was that which went unsaid.

By holding the Fed Funds Rate at 2.000 percent, Chairman Ben Bernanke inferred that the Federal Reserve will use all of the tools in its toolshed to get the economy rebuilt right.

The Fed Funds Rate is one of them, of course. Other tools include capital infusions, reduced borrowing standards, and good, old-fashioned bailouts.

Unfortunately for Americans, though, the Fed's action non-action Tuesday wiped out the mini-Refi Boom that began Monday morning. Immediately following the Fed's announcement, mortgage bonds sold off with such fury that all of Monday's rate improvements unwound, and then some.

Mortgage rates are as high today as they've been at any time in the last two weeks.

So, for homeowners that were waiting for mortgage rates to fall "just a little lower" before taking on that refinance, consider this an expensive lesson. It was the 3rd time in 9 months that a major mortgage rate dip lasted fewer than 36 hours and then unwound in a hurry.

As a comparison, mortgage rates are a half-percent higher today versus yesterday, adding approximately $33 per $100,000 borrowed to each month's mortgage payment.

On a personal note, if you're without a plan to monitor and lock-in extreme rate dips like the one we saw Monday, reach out to me when you get a chance. I'll walk you through the process I use with my clients to capture low mortgage rates when they present themselves. And then, I'll monitor the markets for you daily so you don't have to worry about it.

When rates fall, you'll be the first to know because I'll be calling you.

Monday's rate plunge was short-lived, but I can promise that there will be another one later this year. But, if you're not to be ready to act when it happens, you'll likely miss that one, too.

Interpreting What the Fed Said Today_August 5, 2008

For the second consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent.

In its press release, the Federal Reserve addresses inflation, saying that it "has been high", fingering energy and commodity costs as culprits. The Fed does expects inflation to moderate later this year, however.

Regarding recession, the Fed addressed softening labor markets and tightening credit, and said that high energy prices may slow down economic activity in the months ahead.

The key comment, repeated from the June statement, was this:

Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Translated, it reads:

The Federal Reserve expects that its policy changes to-date will help the markets find balance and order.

In other words, the Fed is biased towards a Fed Funds rate pause at its September 16, 2008, meeting barring new developments.

Stock markets are reacting favorably to the FOMC statement, bouncing higher after the 2:15 PM ET release. This movement is pulling money away from mortgage bonds and, as a result, rates are at their worst levels of the day.

Looking Back and Looking Ahead: June 30, 2008

Mortgage rates improved last week, marking the first time since mid-May that has happened.

The rate drop is the result of how mortgage markets interpreted the Federal Reserve's Wednesday press release.

In it, the Fed said:
Inflation pressures should lessen soon
Growth should remain steady this year
The credit market is currently fragile

Separately, none of this was news to the markets. But considering all three statements together, investors grew nervous of leaving money in the stock market -- specifically in financials.

Post-Fed announcement, there was a wave of selling that dropped the Dow Jones Industrial Average nearly 20 percent from its October 2007 high.

As stocks sold off, though, mortgage shoppers were benefiting.

Rates ticked down in the Fed announcement's wake because the mortgage bond market acted as a "safe haven" for traders. More demand for mortgage-backed bonds caused rates to fall, accented by a favorable run very late in the day Friday.

This week, the momentum may continue, or it may not. There is a lot to capture traders' attention in this holiday-shortened, four-day work week.

The biggest data release of the week will undoubtedly be Thursday's Unemployment Report, but there are also two Fed speakers stumping, as well as Treasury Speaker Paulsen speaking about the economy.

As the week goes on, more and more traders will be leaving for the long weekend so expect rates to move with greater force as Thursday afternoon gets nearer. And, if stocks haven't regained favor with investors by then, expect that mortgage rates will have a good week.

How the Fed’s Words Should Trump the Fed’s Actions Today

The Federal Open Market Committee adjourns from its 2-day meeting at 2:15 P.M. ET today. It's widely expected that the group will leave the Fed Funds Rate unchanged at 2.000 percent.

However, it's not what the Fed does today that has markets so interested. It's what the Fed will say.

One of the Federal Reserve’s roles is to promote stability in the U.S. economy by protecting it from two major threats:
Inflation
Recession

The Federal Reserve's primary weapon against both of these hazards, though, is the same -- the Fed Funds Rate. To combat inflation, the Fed raises the Fed Funds rate. To fight recession, it lowers the Fed Funds Rate.

But in today's economy, there is evidence of both inflation and recession meaning that the Federal Reserve is likely to leave the Fed Funds Rate unchanged for fear of setting the economy too far towards either threat.

Therefore, markets will be left looking for clues in the carefully-worded press release signed by Federal Reserve Chairman Ben Bernanke and the other voting members of the FOMC.

If the Fed admits added vigilance against inflation, it's expected that mortgage rates will fall because inflation causes rates to rise. By contrast, if the Fed harps on the downside risks in the economy, it's expected that mortgage rates will increase.

Either way, today's press release should be a market-mover.

If you're currently floating your mortgage rate or are deciding between different lenders, be aware that mortgage rates will enter a period of extreme volatility this afternoon.
It may be prudent to complete your rate shopping before 2:00 P.M. ET.