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Awaiting The Fed's Next Statement

The stock market bounced back yesterday from Friday's losses, adding 287 points.  There wasn't much activity in mortgage rates, though, which remained relatively flat.

Right now, it's all eyes on the Federal Open Market Committee and their 2:15 P.M. ET press release. 

For as many people that want the Fed to make a powerful statement about the current state of credit markets, there are an equal amount saying that reduction in mortgage money for homeowners is "free markets in action".

Pundits don't disagree on everything, though.  Nearly all believe that the Fed will leave the Fed Funds Rate unchanged at 5.250%.

The Fed's primary concern, of course, is to keep inflation at tolerable levels and the Fed Funds Rate is its primary weapon in that fight.

When the Fed believes that inflation is running too hot, it raises the Fed Funds Rate to increase the cost of borrowing for businesses.  This, in turn, raises the cost of borrowing for individuals which curbs spending and, therefore, slows down the economy.

The Fed meets eight times annually and raised the Fed Funds Rate at 17 consecutive meetings beginning June 2004 (1.000%) through June 2006 (5.250%).  The Fed has not changed FFR since.

(Image courtesy: Wall Street Journal)