Fed Rates Unchanged Amidst Coronavirus-Impacted Economy, No Increases Through 2022

On June 10, the Federal Reserve announced it would leave interest rates unchanged to help preserve the flow of credit in an economy significantly hit by the coronavirus pandemic.

The Fed predicts no interest-rate increases through 2022.

“The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” said the FOMC statement. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

To support the flow of credit, the Federal Reserve says it will continue to increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities, “at least at the current pace to sustain smooth market functioning.”

What does this mean for real estate? While Fed rates do not have a direct influence, mortgage interest rates will likely remain low or flat through the next few years. On June 4, Freddie Mac announced mortgage rates ticked up slightly, though they remain low Year over Year. The latest Primary Mortgage Market Survey® reported average 30-year fixed-rate mortgages at 3.18 percent (down 0.64 points YoY), with 15-year fixed-rate mortgages at 2.62 percent (down 0.66 points YoY) and the 5/1-year ARM at 3.1 percent (down 0.42 points YoY).

Some lenders, however, have stopped offering certain refinance and jumbo mortgage products as credit requirements tighten due to risks associated with CARES Act policies.

How the Industry Is Responding:

“The Federal Reserve’s view that a rate hike will not occur for three years is a signal to the market to expect an all-in accommodating monetary policy. It is also very likely that the Fed will be aggressively purchasing mortgage-backed securities behind the scenes. That means mortgage rates will be at or near 3 percent and near record lows for an extended time. Consumer price inflation is not an issue even with so much printing of money. It’s the right policy at the right time. If for an unexpected reason should inflation pop out, then mortgage rates will rise independent of the Fed as lenders need to compensate for the loss purchasing power of the dollar, which happened during the 1970s.” — Lawrence Yun, Chief Economist, National Association of REALTORS®