The Federal Reserve, also known as the Fed, was in the headlines last week, but not in a bad way. Orion’s brokers know that its primary goal is to promote a strong U.S.economy, using monetary policy, with maximum employment, stable prices, andmoderate long-term interest rates. It doesn’t set mortgage rates… That comes from supply and demand. And the Fed acts at the direction of the Federal Open Market Committee (FOMC).

At the FOMC meeting last week it was announced that the Fed will start reducing itspurchases of securities by $15 billion each month. Federal Reserve Chairman Jerome Powell announced that the Fed will begin the tapering of mortgage-backed securities, including bonds, slowing the pace of asset purchases by $15 billion monthly ($10 billion in Treasury securities and $5 billion from mortgage-backed securities, or MBS), with the possibility of increasing or decreasing that amount depending on the economic recovery. "With COVID case counts receding further, and progress on vaccinations, economic growth should pick upthis quarter, resulting in strong growth for the year as a whole," Powell said.

Will this move increase mortgage interest rates, or were the economic conditions which drove the FOMC’s decision already pushing mortgage rates higher? The Fed has been buying these securities, arguably keeping mortgage rates irrationally at historic lows. It's quite possible that rates will continue to inch up,increasing the urgency for home owners considering refinancing, but that is because economic conditions warrant it, not because the Fed is driving it. That said, Orion’s mortgage rates dropped by the end of last week!

Historically, the Fed has not made an active policy of buying securities, so this is viewed as a return to normal activities. The Fed has also shared that there will be no rate hikes until it is finished tapering. And the tapering itself is expected to be done in a systematic and predictable manner, a little bit each month. No surprises unless there are changes in the economic outlook.

Analysts are pricing in a high probability of three rate hikes in 2022. For the Fed to hike rates three times next year, the Fed will have to be finished with tapering and we will need to see enormous labor market improvement. To repeat, the Fed will react to indices such asinflation or employment, it doesn’t drive them. Orion and our brokers have watched home loan rates behave “behave themselves” after the announcement. It is still a good time to purchase a home or refinance an existing mortgage using Orion, especially if cash is needed.

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