Fed Changes Tactics, Decides Not to Raise Rates
Mortgage News from Quicken Loans
Today the Federal Reserve Open Market Committee (FOMC, Fed) decided not to raise their target for the Fed Funds Rate, a key driver of short-term rates, such as those on adjustable rate mortgages (ARMs), home equity lines of credit (HELOCs) and credit cards. The Fed had raised the Fed Funds rate (the rate at which banks lend to each other overnight) 17 straight times since June 2004 in an effort to contain inflation.
"Today's highly anticipated decision by the Fed to leave the Fed Funds target rate unchanged at 5.25 percent says they are confident the economy is in moderation, although their language tells us they'll continue to keep an eye on inflation, leaving room for future increases," said Bill Emerson, CEO of Quicken Loans.
"The Fed's decision to not raise rates will likely help the housing market in the long term, but in the short run, rates may continue to rise. Consumers will still look to protect themselves against future increases by refinancing from adjustable rate mortgages and home equity lines of credit into fixed-rate programs. In the mortgage world, the biggest impact of the Fed's long campaign of short-term rate increases has been felt by those with adjustable rate mortgages. Nearly $2.2 trillion in ARMs are set to adjust in the next two years. By far, the biggest trend in mortgage lending today is homeowners switching from adjustable rate programs to those with rates that are fixed for longer periods."
This article is reprinted by permission from Quicken Loans © 2006 Quicken Loans Inc. All rights reserved.
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