Are The Fed's Able To Keep Mortgage Rates Down?

Rising Mortgage Rates

The Federal Reserve (Fed's) in trying to bail out the credit crisis have run into a problem: mortgage rates have gone up!

Since September, the Feds have reduced its target for short-term interest rates by 2.25 percentage points to 3%.  But mortgage rates are actually rising.  I realize that mortgage rates track treasury bond yields but the Fed's monetary policy has focused on improving the credit crunch that including keeping mortgage rates low to help stimulate the housing market.  Since September, the average interest rate on a standard 30-year fixed-rate mortgage has had little change from last September and Interest rates on jumbo mortgages are also track close to their September levels.

There are several reasons mortgage rates haven't responded more to the Fed's rate cuts. One is that long-term Treasury yields, which are the benchmark for most mortgage rates, have risen recently for a number of reasons: 

• Increased concern about inflation as the prices of oil and other commodities soar.
• Investor's hesitancy to buy treasury bonds at auction.  Investor concerns may include:
  -  Fear that there may be a Government bail out of "bond" insurers
  -  Fear of Inflation:  inflation erodes the value of a bond.
  -  Concern from previous bad investments that included "sub-prime" mortgages
• There isn't a direct relationship between discount rates and mortgage rates so a monetary policy directed at lowering Mortgage Rates is indirect at best.

As I posted before, the Feds are trying hard to keep us out of a recession, but their policy can back-fire by stimulating inflation. 

Also Read: 

1. Are the Feds Fueling Inflation?
2. Do Mortgage Rates Track with Fed Funds Rate or 10 Year Treasury Bonds?
3. A Question Often Asked When the Feds Changes the Federal Funds Rate
4. A Question Often Asked after a Change to the 10 Year Treasury Rates

You can find AJ Nisen on Active Rain at Contra Costa California Mortgages or at Bank of America Mortgage .  Call AJ to talk about your Mortgage, Mortgage Rates, Free Credit Report or visit AJ's website to use his mortgage calculator. 

Alan 'AJ' Nisen
Mortgage Loan Officer
Email: aj.nisen@bankofamerica.com
http://mortgage.bankofamerica.com/ajnisen 
http://www.activerain.com/ajn