The Fed left the Fed Funds Rate unchanged again today for the eighth time in a row after 17 consecutive hikes. None of this is news to us.

The Fed’s press release, though, highlights a key theme about our country’s economy: inflation may be moderating, but we are far from in the clear.

In other words, there are still a handful of outside factors that could push the Fed back out of their “comfort zone” and force them to raise the Federal Funds Rate.

Mortgage rates were up only slightly after the Fed’s remarks which were neither tough nor soft on inflation and the economy.

Source
Parsing the Fed Statement
The Wall Street Journal Online
June 28, 2007
http://online.wsj.com/mdcapp/public/page/2_3024-info_fedparse_shell.html

The Federal Open Market Committee adjourns from a two-day meeting today and so this is a good time to remind yourself: The Fed does not control mortgage rates.

Rather, the Fed sets the Federal Funds Rate.

And the FFR is, in turn, used to determine Prime Rate.

Prime Rate, in turn, is used to determine the rates for credit cards, charge cards and home equity lines of credit.

This is why today’s meeting should be important to holders of debt — the Fed’s decision to lower, raise or hold the FFR at its current level can impact the spending of every American household.

The Fed is widely expected to hold the Fed Funds Rate steady today, but Ben Bernanke & Co will issue a press release discussing the group’s view on the economy and the outlooks for the future.

It is the statement that has the biggest influence over mortgage rates. If the FOMC expresses concerns about inflation, mortgage rates should jump in response. Naturally, the reverse is true.

Yesterday, after starting the day with strong improvement, mortgage bonds gave up their gains to end the day flat. Today, bonds are already trending lower (which means higher mortgage rates).

One thing is for sure: there is a lot of uncertainty surrounding today’s press release and traders are unsure of what bets to make next.

The mortgage markets officially enter “Wait-and-See” mode beginning today as the Federal Open Market Committee begins their two-day meeting.

The importance of the FOMC’s meeting to mortgage markets is all in the words of the committee as opposed to their actions (or lack thereof).

After all, the group has not “done anything” in a year and yet markets always consider its meetings to be a highly-anticipated event.

What will the FOMC say about inflation, the economy, and the outlook for the future? This is what impacts the mortgage markets more than anything else.

If the Fed is fearful of inflation, mortgage rates will go up because the dollar is expected to lose value. That dimishes the value of mortgage bonds to foreign investors.

If the Fed is satisfied that the economy is exhibiting controlled growth, mortgage rates will come down, by contrast.

Right now, markets are anticipating a bullish view on inflation from the Fed and that is one of the reasons why mortgage rates increased so dramatically since March.

It will be looking for further clues at 2:15 P.M. ET Thursday afternoon.

From the CBS News Video Web site, an interesting story for anyone who’s recently applied for credit.

Credit repositories now sell the contact information of people applying for new mortgage loans to other mortgage lenders that want to compete for the business.

Called “trigger leads”, an unsuspecting mortgage applicant can have his credit checked by a mortgage lender, and then discover that the credit bureaus have sold the rights to his personal information to countless other credit firms across the country.

Because trigger leads identify a person making a lending decision right now, one marketer of trigger leads calls them “the best leads in the business”. It’s no wonder that the credit bureaus are marketing them, and that some lenders are salivating over them.

As the family in the CBS video learned, though, it’s difficult to make the phone stop ringing. Some of the calls bordered on harassment.

For consumers, there is a very low-tech opt-out Web site called http://www.optoutprescreen.com that is sponsored by the three major credit bureaus (and are also the ones that sell trigger leads). You can opt out for five years, or submit a form by mail to opt out forever.

Watch the video and then go protect yourself.

(Image courtesy: CBS News Video)