we-love-society.com

Interest rates near zero are holding

The Federal Reserve is rewarding people who are looking for mortgage, auto and personal loans with a continued near-zero interest rate. The good news for borrowers is that it will probably last for a little while. The Federal Open Market Committee aims to keep the federal funds rate between 0 and .25% throughout the month of January. The importance is that banks make overnight loans between themselves at federal funds rates and that influences short term loan rates, variable rate credit cards and short term CDs. It’s been the thirteen month that the Fed has kept federal fund rates at near zero.

Change is going to come

Though the near future of interest is most likely safe, things could change. The first signs of legislators wanting to push the funds rate upwards are showing. One member of the Federal Open Market Committee Thomas Hoenig said he believes that the “economic and financial conditions had changes sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.” Chief economist for Quicken Loans Bob Walters said, the statement is the “first crack in the armor.” He believes once a few more committee members start agreeing with Hoenig, the rate most likely will start elevating.

Borrowers and savers

For now keeping the federal funds rate low is good news for borrowers but not so good news for savers. Keeping the rate so low means that yields on insured bank deposits are going to stay low. For example, the national average on money market accounts in the beginning of January was just 0.24%. Certificates of deposit were about the same. Anyone looking to save isn’t going to find this the best time, which is by design. The Fed is pushing people to start borrowing and lenders to start lending.

In addition to the federal funds rate being kept low, the Fed also bought more than a trillion dollars’ worth of mortgage-backed securities since the end of 2008. The idea behind the buy was to “reduce the cost and increase the availability of credit for the purpose of houses.” Anyone looking for a mortgage, auto or personal loan may find it much easier in this economic climate than they normally would. Walters also said, “The Fed is making the loan process as easy for as many people as possible. The idea is to put money back in people’s pockets.” The Fed is betting that people that can get more assets will return to previous spending habits.

The future of the market

The Fed announced that after March of 2010 it will stop buying mortgage-backed securities. Everyone in the mortgage industry knows what that means: most likely, mortgage rates will quickly start rising. Mortgage analyst Adam Quinones thinks that the increase in mortgage rates might be moot. He said, “There isn’t a better time for the Fed to make an exit.” Interest rates on securities will start to increase slowly as well. Anyone looking to borrow mortgage, home equity, auto or personal loans would be best served by getting to it soon.