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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. have been pushed to historic lows since the start of the coronavirus pandemic in the U.S., and new minutes from the Federal Reserve’s Open Market Committee (FOMC) hint that they’re likely to remain low, at least for a while. In a nutshell, that’s because the Fed’s latest minutes suggest that the central bank to shift its monetary policy just yet — a change that most experts think will come first in the form of what’s known as tapering, or slowing the pace at which it buys assets like bonds on the open market. “Several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases,” the minutes from the June meeting stated. If you’re not up on the jargon, here’s what Greg McBride, Bankrate’s chief financial analyst, said that actually means for you and your money, particularly borrowing rates. The taper tug-of-war
The Fed influences economic conditions on the ground by buying up financial assets in the open market. Those purchases, or lack of them, all filter down to influence how much banks and other lenders charge on personal financial products like mortgages. With economic uncertainty high as a result of the pandemic, the Fed has been on a buying spree, snapping up billions of dollars in assets like mortgage bonds. As the recovery picks up steam, the Fed is likely, at some point, to feel less inclined to keep injecting money into the economy, because that can push inflation higher, which counterintuitively results in you, the consumer, having less buying power. Slowing down the rate of government asset purchases, until those purchases eventually hit zero, is what’s informally known as tapering. How does the Fed s tapering affect mortgage rates
“The prospect of the Federal Reserve dialing back their pace of bond purchases would seem to conclude that mortgage rates have only one direction to go – up. But there are a number of variables at play, particularly around the timing and magnitude of the tapering,” said McBride. A slower, more delayed taper will encourage mortgage rates to stay down, while a faster, sooner one will push them up more quickly. “If economic growth comes in on the soft side, or if inflation does indeed look to be transitory, the Fed doesn’t need to taper as soon or as fast as might be assumed, keeping bond yields and mortgage rates low,” McBride said. “But if the Fed is seen as behind the inflation curve or they taper the mortgage bond purchases sooner or faster than Treasuries, mortgage rates would likely move up.” What do the Fed minutes suggest
The most recent FOMC minutes suggest that the Fed isn’t ready to ramp up its taper yet, so mortgage rates are likely to stay low for a while longer. That could all change in subsequent meetings this year, depending on how the economy evolves. “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data,” the minutes said, strongly suggesting that such a change is on the horizon. Bottom line
The Fed has tried to protect the U.S. economy from the worst of the economic uncertainty surrounding the COVID-19 pandemic through policies that helped promote cheap borrowing. As recovery data comes in, the Fed is likely to reverse those policies to encourage more “normal” economic activity, but the pace at which those changes are made is yet to be determined. In the meantime, it’s a great time to consider a refi if you haven’t done so recently, because these low mortgage rates are on the verge of being behind us. Lawrence Yun, chief economist at the National Association of Realtors recently told Bankrate he expects interest on mortgages to about 3.5 percent by the end of this year. Learn more
SHARE: Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy. Related Articles