Fed To Keep Fed Funds Rate Low

The headlines about the Fed keeping rates low can be very confusing and misleading.  They are not talking about mortgage rates.  They are talking about the Federal Funds rate which is the rate at which banks lend money to each other overnight. 

Now this can affect mortgage rates indirectly because if they are raising the Fed Funds rate it could be because of inflationary worries and an improving economy both of which are bad for mortgage rates. 

It’s so funny when I talk to people about rates and they say “yeah interest rates are going to go up because the Fed stopped buying mortgage-backed securities” when they most likely have never heard of what mortgage-backed securities nor do they understand it.  It reminds me of that scene in Good Will Hunting when Matt Damon confronts that guy in the bar that just recites paragraphs verbatim from a text book. 

Don’t get me wrong, there is nothing wrong with never hearing about mortgage-backed securities because there was obviously one point in my career that I didn’t know what they were either but don’t comment on something because you heard someone in the media saying.  Comment on it because you spoke to a professional who knows about it and explained to you what it means and what could happen.  There is nothing wrong with having an opinion but make sure it’s your own opinion and not someone else’s.  It could bite you in the butt. 

http://online.wsj.com/article/SB20001424052748704423504575212310478936880.html?mod=djemITP_h