Fed Vows To Keep Rates Near Zero

The Federal Reserve has stated that it will keep interest rates near-zero in response to the nation’s continued lockdown from the COVID-19 outbreak.

 

The Federal Open Market Committee decided to maintain the target range for the federal funds rate at zero to 0.25%. The committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

 

“To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions,” said the Fed in a statement. “In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.”

 

In mid-March, the FOMC voted to lower the target range for the federal funds rate to zero to 0.25%. In addition, the open market committee launched a $700 billion quantitative easing program to further protect the nation’s economy from the impact of the coronavirus.

 

In late March, the Fed took additional actions with the purchase of at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. In addition, the open market committee will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.

 

“Of note to the mortgage industry, while they did not specify a pace for agency MBS and CMBS purchases, the [open market committee] did highlight that, ‘the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning,’” said Mortgage Bankers Association Chief Economist Mike Fratantoni. “It is clear they want their actions to result in lower rates for mortgage borrowers, and recognize that this can only happen in the context of orderly markets. We expect that they will continue to modulate their purchases over the next few weeks, so long as markets remain stable.”

 

As the Fed promised to keep rates low, today’s Weekly Mortgage Applications Survey from the Mortgage Bankers Association shows that potential homebuyers are slowly stepping back in the market, as purchase apps rose 12% over the previous week.

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