Feb
Fed Vows to Hold Interest Rates Low Through 2014
Written by Leo FranklinSeveral years ago, analysts and traders spent many hours trying to guess what the Federal Reserve would do during their regular meetings. Many traders took positions based on whether or not the Fed was likely to make a change in their policy and analysts pored over every word that Fed Chairman Alan Greenspan offered for clues about his thinking. Under Chairman Ben Bernanke, there has been a move towards more openness and the Fed took that policy to a new level after their January meeting.
They announced that they will “keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipate that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
Bernanke’s term expires at the beginning of 2014. He could be appointed to a new term, but nonetheless it’s interesting that the Fed announced their policy will remain steady even if there is a new chairman. This shows that they believe the economic slump will continue for at least three years and there is almost no chance that the economy will grow quickly any time soon.
The Fed expects the economy to grow between 2.2 percent and 2.7 percent in 2012. This is a downward shift from its most recent forecast issued in November. Less than two months ago, they thought the economy would grow between 2.5 percent and 2.9 percent. Officials are also pessimistic on unemployment and forecast that this indicator will dip only slightly this year to 8.2 percent from December’s 8.5 percent reading.
Why low interest rates are good for reverse mortgages
Low interest rates have a number of implications for the economy and for individual consumers. Home owners considering a reverse mortgage should carefully consider the impact low interest rates will have on their decision.
Reverse mortgages are available with variable interest rates. Those rates are now at record low levels, and since the Fed’s statement was released, it’s now clear that those rates will remain low for some time. The savings from a variable rate loan could be more than 2 percent a year and variable rate loans had interest rates near 4 percent recently.
There are no monthly payments required with a reverse mortgage, so the interest is imply added to the loan balance and paid when the house is eventually sold. Low rates will reduce the ultimate payoff balance and could make a reverse mortgage even more appealing to some home owners looking at ways to boost their retirement income.
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