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The Federal Open Market Committee (FOMC) held its July meeting yesterday. They kept short-term rates at their current near-zero levels. That was fairly ho-hum and in line with expectations.

Analysts were far more interested in a look in the crystal ball for a peek at the future. Acknowledging the challenges posed by COVID-19, the Fed continued to show willingness to hold nothing back in an effort to support the economy.

If you take away one action point from this information, it should be that rates remain low and nothing about this announcement changes that. Because mortgage rates tend to be correlated with their shorter-term cousins, if you’re in the market for mortgage, there’s no better time to move forward if you’re ready.

My analysis of the Federal Reserve statement for July is below. My comments are in bold.

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The Committee reaffirmed its commitment to doing whatever it can to support the smooth functioning of the economy, with special emphasis on employment and inflation levels. What I find interesting about this is that those are the goals of any FOMC policy meeting. However, these are turbulent waters and the Fed wants us to know that it will do everything in its power to assure the smoothest possible voyage.

The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The Committee is acknowledging the great invisible enemy in the room: COVID-19. It’s affecting everyone and everything in some way or another. Economic activity has bounced back moderately since their last meeting, but things are still not anywhere near where they were prior to March. People aren’t traveling or doing anything to the extent that they normally would in the summer months. Although things have gotten better, and the Fed does pat Congress and itself on the back for some of the actions taken, there’s a ways to go.

Among other things, the Fed is concerned particularly about inflation. If prices aren’t rising, people aren’t as motivated to buy now. If they aren’t spending money, they aren’t taking advantage of the products and services on which the economy is built.

In his press conference following the meeting, Chairman Jerome Powell said that household spending recovered to about half of what it was prior to COVID-19, although travel industries aren’t bouncing back with the same force. Additionally, business fixed investment isn’t where they would like to see it.

The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. (Editor’s note: Emphasis added.) The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

Because the broad impact of COVID-19 in the future remains unknown, a lot is up in the air, and there are risks to the economy moving forward. With that in mind, the Federal Reserve chose to keep rates where they are, between 0% – 0.25%. This is consistent with policy forecasts released last month that says the Fed doesn’t plan on raising short-term rates until at least 2022. More generally, the Fed wants to move very carefully until COVID-19 is in control enough to give consumers confidence to go out and fully participate in the economy.

The good news is that short-term interest rates being this low promotes lower longer-term rates for things like mortgages. If you’re in a position to get a mortgage, now is an excellent time. Mortgage rates are near record lows.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Federal Reserve always gives an outline of the information it looks at in making its decisions on short-term rates. Many of these are typical economic indicators like business investment, household spending and inflation, but COVID-19 adds another layer to this that’s beyond the control of any economist. There’s the undertone throughout this statement that much of this recovery is going to depend on the spread of COVID-19, along with treatments and vaccines. It’s going to take effective implementation of these things to get the economy back to normal.

To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

The most important thing in this paragraph for consumers is the fact that the Federal Reserve will continue to buy treasury securities, as well as commercial and residential mortgage-backed securities (MBS).

Because more buyers of MBS means the return for investors can be lower and still attract buyers, this supports low mortgage rates, which we’ve seen for quite a while now. The credit and overnight funding operations are a little more technical, but the action is meant to help with the smooth functioning of business lending.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Everyone was in agreement with the actions taken.

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