Ben Bernanke, The Fed, and Mortgage Rates
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When Ben Bernanke of the Federal Reserve (The Fed) gives testimony to Congress and/or when the Federal Reserve meets, how does this affect mortgage rates? The next paragraphs will examine the role Ben Bernake and the Federal Reserve play in determining the direction of mortgage rates.Ben Bernanke is the chairman of the Federal Reserve and sets the federal funds interest rate. The federal funds interest rate affects the 10 year bond and mortgage rates. If growth is slow the Fed will lower rates. If inflation is high the Fed will raise rates.
Similar to how the President gives a State of the Union, Mr. Bernanke gives a "State of the US Economy" in his testimony and written Fed statements. Many times, the omission of previously noted problems in the economy and/or acknowledgement of new economic issues can cause a shift in interest rates.
Keep your eye on Mortgage Backed Securities to get an idea where Mortgage Rates are headed. A mortgage-backed security is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans.
The Federal Funds Rate is the interest rate in which banks can borrow money overnight to meet their reserve requirements. The Prime Rate, which is the base for most Home Equity Lines Of Credit(Heloc's) is directly correlated to the Federal Funds rate.
Ben Bernanke and the Fed have a major influence on the interest rates and even more importantly the mortgage rates that we borrow on. To explain this as easily as possible, during the Fed testimonies, they usually outline what is going on with economical data and what measures the Fed plans to take based on this data. This in turn directly affects the mortgage rates.
In his testimony, Ben Bernanke goes on in detail how he feels the economy is faring as a whole. His opinions about inflation can have a significant affect on mortgage rates in particular. For example, if Mr. Bernanke states that inflation poses a serious risk in the future, there is a great likelyhood that mortgage rates will adjust upward.