The U.S. Federal Reserve’s June summary of economic projections released Wednesday shows interest rates near level zero lasting the rest of this year and the next couple of years to support economic recovery. That could mean the record low mortgage rates the real estate industry is seeing will continue.
“What the June [summary of economic projections] shows is a general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero,” Federal Reserve Chairman Jerome Powell said Wednesday during a press conference.
“Of course, my colleagues and I will continue to base our policy decisions on the full range of plausible outcomes, and not on a particular forecast,” Powell added. “This risk management approach is the best way we can promote our maximum employment and price stability goals in these unusually uncertain circumstances.”
Powell also acknowledged that the Fed had been purchasing, “sizable quantities,” of Treasury and agency mortgage-backed securities to support the markets and provide liquidity. As the markets improved, the Fed slowed the purchase of mortgage-backed securities, but still plans to increase its holdings of mortgage-backed securities over the coming months.
No rate hikes — along with the continued purchase of mortgage-backed securities — could mean interest rates for a 30-year-fixed-rate mortgage stays near 3 percent, or record lows, according to National Association of Realtors Chief Economist Lawrence Yun.
“The Federal Reserve’s view that a rate hike will not occur for three years is a signal to the market to expect an all-in accommodative monetary policy,” Yun said. “It is also very likely that the Fed will be aggressively purchasing mortgage-backed securities behind the scenes.”
“That means mortgage rates will be at or near 3 percent and near record lows for an extended time.”
Yun doesn’t believe consumer price inflation will be an issue with the amount of money printing, adding that it’s the right policy for the current economic climate.
“If inflation, for an unexpected reason, should pop up, then mortgage rates will rise independent of the Fed as lenders need to compensate for the loss of purchasing power of the dollar, which happened during the 1970s,” Yun added.