Feds Cut Benchmark Rate to Zero
Information below was gathered from Realtor Magazine article:
Yun: Fed’s Rate Cut to Zero Is ‘the Right Policy’
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The Federal Reserve cut its benchmark rate to zero. This is their second response to the economic reaction to the COVID-19 outbreak. The Fed also said it would buy $700 billion in Treasury and mortgage bonds.Realtor Magazine, March 16, 2020
The Fed’s benchmark rate is not directly tied to mortgage rates, even though it can influence them. Mortgage rates are more directly tied to the 10-year Treasury note which has recently fluctuated. Economists say that mortgage rates don’t always necessarily respond in unison to the Fed’s rate adjustment. There are other influences in play, such as lender backlog.
“The monetary policy change is the same one applied a decade ago during the Great Recession—the lowest rates combined with quantitative easing,” says Lawrence Yun, chief economist at the National Association of REALTORS®. “This is an all-out measure to prevent a recession and fight the fear that is blanketing the country. It is the right policy, since the policy can easily be reversed should a vaccine be discovered or the virus goes away.” Yun also said that during the last recession, real estate was on “wobbly ground with loose lending and too much supply. Today, there is no subprime lending and too little supply. The real estate market will hold on much better.”
Fed officials reassured Americans that the U.S. economy has the ability to remain resilient against the slowdown caused by the coronavirus although some economists have warned that a recession could be on the horizon.