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Close up of Federal Reserve Headquarters

If you’re sick of talking about COVID-19 all the time, you’re not the only one. However, it’s driving everything going on right now, whether we’re talking about our general lives or the economy. The Federal Reserve’s Federal Open Market Committee (FOMC) has been forced not only to weigh in but come through with several wide-ranging policy decisions to try and contain the economic fallout that’s been necessary to flatten the curve in the battle against this virus.

There’s no denying that it’s pretty bleak out there right now from an economic perspective, with many Americans struggling. However, there is some good news. If you are currently working, one of the best things you can do to put yourself in a better position for the future financially is to pay less for your current bills. Mortgage rates are extremely low, in part because of the moves of the Federal Reserve. If you’re considering a purchase or refinance, it’s a really good time to look at your options. Feel free to speak with one of our Home Loan Experts.

The Federal Reserve’s April announcement is below. My analysis is 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.

Normally, the first paragraph of any statement from the Fed involves a basic overview of conditions in the economy, but the Committee has dispensed with that here. Instead, it starts the statement by pledging to use everything at its disposal to support the economy, including providing supports that encourage hiring, but also keep prices stable. Usually, these statements are just concerned with interest rates, but as we’ll see in a minute, the Fed is pulling out all the stops.

The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.

The Fed starts by acknowledging the problems posed by COVID-19. Although necessary to contain the spread of the virus, the measures taken in the name of public health have had a serious impact on the economy. Unemployment is at levels not seen since the start of tracking. U.S. gross domestic product, widely recognized as the primary measure of economic growth, just turned negative, indicating a shrinking economy. This is likely to get worse in the second quarter because stay-at-home orders didn’t take effect until mid-March.

Because people aren’t going anywhere, oil prices have dropped precipitously. Moreover, business decisions as well as logistical realities related to the virus have made it harder to obtain financing for consumers and businesses. This is the reality the Committee is confronting.

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. 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.

Acknowledging the reality that the virus is likely to continue to have an impact over the near-term and possibly longer, the Federal Reserve chose to keep short-term interest rates between 0% – 0.25%. Although not directly tied to longer-term rates for things like mortgages, there tends to be a correlation between the two, so this is good news for those looking to purchase or refinance a home.

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. To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support 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 market conditions and is prepared to adjust its plans as appropriate.

There’s a lot to unpack here. First, the committee talks about some of the things they’ll be taking a look at in determining future policy decisions. Some of this is the usual stuff – it always monitors employment levels and conditions in the labor market as well as inflation that’s both realized and expected in the future. Global developments also always play a role, but what’s new here is the emphasis on looking at health data. That said, we live in crazy times.

Unprecedented times call for extraordinary measures, and as we mentioned earlier, the Federal Reserve is making use of a range of tools. For starters, the bank is purchasing both Treasury securities and agency mortgage-backed securities. The latter is very important in the mortgage market because it helps keep rates down. If there are more players making big buys in the market, the yield doesn’t have to be as high to get people to buy the securities. The other stuff around overnight and repurchase operations gets a little bit complicated, but it’s designed to support the flow of credit and lending by creating increased liquidity in the market.

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.

All voting members of the FOMC were united in this policy decision.

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