August 06, 2020

Federal Reserve signals possible end to record low rates

7 minutes

In today’s Daily Download episode, HousingWire covers an announcement that the Federal Reserve may abandon its longtime strategy of using its benchmark rate to pre-emptively

prevent inflation from rising above its 2% target, which could lead to an end of rock-bottom mortgage rates.

For some background on the story, here’s a summary of the article:

Fed Chairman Jerome Powell said at a news conference last week that the central bank was close to wrapping up a review of its policy-making strategy that began in 2019. The results will be announced “in the near future,” Powell said.

If the Fed allows inflation to rise above its current 2% target, it would put upward pressure on mortgage rates because investors who buy fixed assets use inflation as the mainstay of their calculation that determines the yield, or return, they are willing to accept.

Because higher inflation eats into bond yields, investors demand a higher return for the mortgage-backed securities and other bonds they buy in when inflation is rising. That also boosts yields on Treasuries, which are used as a benchmark for MBS investors.

Currently, the problem facing the Fed is sub-target inflation, as the COVID-19 pandemic curbs the consumer spending that accounts for about 70% of America’s GDP. In June, the so-called “core PCE,” the Fed’s preferred inflation gauge that measures consumer prices without volatile food and energy costs, rose 0.95% from a year earlier.

Following the main story, HousingWire covers an article that claims whatever plan Congress comes up with to extend or replace the extra $600 a week in beefed-up jobless benefits is likely to be retroactive, and an article that asks, in a virtual learning world, do you still need to buy a house in a good school district?

The Daily Download examines the most compelling articles reported from the HousingWire newsroom. Each afternoon, we provide our listeners with a deeper look into the stories coming across our newsroom that are helping Move Markets Forward. Hosted by the HW team and produced by Alcynna Lloyd.

HousingWire articles covered in this episode:

Fed inflation plan could end rock-bottom mortgage rates

Whatever jobless aid Congress comes up with, it’s likely to be retroactive

In a virtual learning world, do you still need to buy a house in a good school district?

...more

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By HousingWire