Sarah. Cooke, Monday, April 1
What the Fed Decision to Not Raise Rates Means for Lenders
The Federal Open Market Committee decided to leave rates at 2.25% to 2.5% at its meeting earlier this month. Initially, two hikes were forecast for 2019, but, “Recent indicators point to slower growth of household spending and business fixed investment in the first quarter.” The FOMC has vowed to be “patient” as it monitors global financial and economic factors.
So, what does that mean for community financial institutions? The global bond market went insane, triggering an inverted yield curve in the U.S. – one of a handful of indicators that a recession is on the horizon. A few months ago, consumers were putting the brakes on buying and refinancing mortgages because the rates were charging upward, but now they’re plummeting back down.
Freddie Mac reported that the 30-year, fixed-rate average plunged to 4.06%, with an average 0.5 points on March 28, down from 4.28% the week prior. The 15-year fixed dropped to 3.57% (+0.4 points), and the average five-year adjustable fell to 3.75% (+0.3% points).The good news is that this shift could help open up some opportunities for purchases, home equity loans and lines of credit, or refinancings.
According to Freddie Mac, “The Federal Reserve's concern about the prospects for slowing economic growth caused investor jitters to drive down mortgage rates by the largest amount in over ten years. Despite negative outlooks by some, the economy continues to churn out jobs, which is great for housing demand. We have recently seen home sales start to recover and with this week's rate drop, we expect a continued rise in purchase demand.”
While an inverted yield curve does not necessarily mean we’re heading toward a recession, one has preceded each of the last seven recessions. The “experts” say they are expecting anything ranging from a mild recession to worse than the Great Depression. The important thing to do is not to panic. Vox is reporting that yield curves in developed countries have become structurally flatter over time, so it could just represent a natural progression of economic states. But the drop will hit community financial institutions, which are more dependent on interest income – and particularly credit unions that are limited in their investment and alternative capital authorities – harder than the larger, more diversified banks. Regardless, it’s important for community financial institutions to keep their name out in front of consumers, and let them know that you are there to help as you can during a time of uncertainty. Ser Tech can help. Contact us today to learn more.