Fed Bumps Bank Rates But Long Term Mortgage Rates Aren't Climbing

LOS ANGELES -- As mentioned in other columns we've posted, I'll take the risk of being redundant by saying that The Fed (Federal Reserve) cranked the cost of borrowing for Americans who own or intend to purchase properties countrywide by raising short-term interest rates (as they have promised repeatedly). On Tuesday there was a one quarter point hike, making it the eighth bump since June 2004. That brings the key bank lending rate up to an even 3 percent.

The Fed said in their formal announcements that overall spending growth has eased-up a bit, mainly because of the elevation in energy prices in recent months. A key point sidelining such is that that inflationary pressures at the consumer level of our economy have risen in recent months.

Here's the kicker: Despite higher short-term interest rates, longer-term mortgage rates have stayed at a historically low level. Any economic expert will tell you that this is an anomalous situation. It is most abnormal for long-term rates to have laid at the bottom like they have given the circumstances. It appears that mortgage rates as well as the bond market have responded to the Fed's obviously successful attempts at deflating inflation and furthermore keeping control of it.

The Federal Reserve appears confident that although though we are experiencing inflation, conglomerate belief in Washington is that inflation is, and will continue to be, under complete control. Synopsis: The Fed believes without a shadow of a doubt that inflation will not become a problematic state for our economic big picture.

According to the official statement, The FOMC (Federal Open Market Committee) decided Tuesday to raise its target for the federal funds rate by 25 basis points to 3 percent. The belief system behind the FOMC is that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. More on how this is really going to affect homeowners and those seeking low rate home purchase mortgages throughout the next week.

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