Fed Says Low Rates To Stay Through 2015
Dec 12th, 2012 @ 9:07 PM by Amber Nelson
In a recent forecast, members of the Federal Open Market Committee projected that their benchmark interest rate would be held near zero for at least the next two years, a prediction that will affect everything from mortgage rates to car loans.
The Fed officials agreed that low rates are necessary to spur activity in the economy until the unemployment rate falls down between 6 percent and 6.6 percent. And that they don’t see happening until 2015.
In order to keep interest rates at record lows, the Fed has committed to continue its program of quantitative easing for the foreseeable future. That means it will keep buying up $40 billion a month of mortgage bonds and will start spending $45 billion a month on Treasury bonds come January. As the Fed said at its December 12 meeting,
“without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions” and “taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
So far the Fed’s easing policies have helped push mortgage interest rates to historic lows. The renewed pledge should help rates stay near their current rock-bottom level, at roughly 3.3 percent, with the possibility of moving even lower in the coming weeks.
And while low interest rates should encourage more borrowing and lending, it will likely take another two years before unemployment drops and the rest of the economic factors to fall into place. As Greg McBride, a senior financial analyst Bankrate.com said in a BusinessWeek article,
“Low rates are not a panacea for this economy. If they were, it would have been sunshine and daffodils four years ago.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.