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How The Federal Reserve Affects Mortgage Rates. , Jasidih

Admin - Posted on: 19/Jul/2016

The rate on a 30-year fixed mortgage has been at historic lows in recent years—the monthly average rate for May 2016 was 3.60%. This has come about after the Federal Reserve had raised interest rates following historic lows following the Great Recession. While the Fed does not have the ability to directly set mortgage rates, it does create the monetary policies that indirectly affect these rates. (Related How Much Influence Does The Fed Have?) For example, in response to the financial crisis, the Federal Reserve took the unusual step of embarking on a quantitative easing program in which it bought up mortgage-backed securities and government debt in the form of Treasury bonds. The program, which began in November 2008 and ended in 2014, increased the money supply in the nation’s financial systems. This encouraged banks to lend money more easily. It also drove up the price and drove down the supply of the types of securities that the Fed bought. All these actions had the effect of kee

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