Shelter Six:  Fed Cuts Short-Term Rates to Zero

With the coronavirus posing a dire threat to economic growth, the Federal Reserve took the dramatic step on Sunday of slashing the Fed Funds Rate by 1% to 0%.

The Fed Funds Rate is the overnight rate at which banks lend money to each other and does NOT directly affect mortgage rates, which move in correspondence to the bond market.

To keep rates low and markets fluid, the Fed also announced it will purchase $200B of mortgage-backed securities and $500B of Treasury securities over the next few months.

Mortgage rates are responding to the Fed stimulus by dropping on Monday, but this is after mortgage rates spiked to the highest level in months to close out last week.

After falling to an all-time low last Monday, mortgage rates surged throughout the week as lenders experienced capacity issues after a surge in mortgage applications.

Markets are clearly not functioning as normal, evidenced by the gap between the 10-year treasury yield and the 30-year mortgage, which is at the widest margin since 2009.

Rate Update

The coronavirus dominated financial market news last week and caused nearly unprecedented daily movements.  While stocks posted enormous losses, bonds lost some of their appeal as an alternative, and mortgage rates rose sharply.

This Week

The coronavirus will remain the main focus for investors.  The biggest economic report will be Retail Sales on Tuesday.  News about the US elections could have an influence.

March 16, 2020 by · Leave a Comment

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.

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