By Mike Colpitts
Just minutes after the Federal Reserve announced its new monetary policy, dubbed “Operation Twist” mortgage rates dropped. Rates were being set lower and lower by banks and mortgage lenders throughout the afternoon and evening hours Wednesday.
For homeowners looking for a refinance and perspective home buyers the policy move came as tremendous news. The fixed 30-year rate mortgage was available from several lenders at 3.79% on Housing Predictor, well below the lowest all-time rate average on record of 4.09%.
Operation Twist is the Fed’s newest move to revive the ailing U.S. economy by essentially lowering mortgage rates and interest rates paid by consumers on other goods and services. The Fed also said that it will use funds from maturing securities on its $885-billion mortgage securities portfolio to buy more bonds, which should also keep pressure on mortgage rates to keep them lower for an extended period.
The central bank’s decision to boost investments in longer term Treasury bonds by $400 billion over the next nine months is a boon for consumers. The move is designed to increase spending by consumers making credit cheaper.
It’s unclear what the Fed’s move will do to Wall Street, which has been dealing with its own woes for months as millions of veteran stock buyers flee financial markets for other investment vehicles. More than 70% of all equities traded are now by professional traders.
The Fed’s announcement also sent Treasury bond rates to record lows and the stock market falling. At the close of trading the New York Stock Exchange industrial average was down 283.82 points to 11,124.84, the worst in two months. The yield on the benchmark 10-year Treasury sank to 1.86%.
“Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated,” the Federal Reserve said in a statement. In a more cautious statement, the Fed also said it detected “significant downside risks to the economic outlook, including strains in global financial markets.”