Interest rates are moving upward

Last week, Federal Reserve ("Fed") officials voted to raise one of their two benchmark rates for the first time in a couple of years. They raised the "fed discount rate" - or the rate at which banks borrow overnight from the Fed - to 0.75%. They left the "fed funds rate" - at which banks can borrow from each other overnight - near its all time low of nearly zero.

The Feds use these rates to influence the direction of the economy, and tend to tighten monetary policy (including raising rates) when concerned the economy is growing too quickly. So when the securities and currency markets reacted negatively, Fed officials rushed to explain that this did not represent a major change in monetary policy, but rather a technical change designed to bring the two benchmark rates back to a more normal difference of 1%. Various officials commented that the economic recovery was still too fragile, and unemployment still too painfully high, for the Feds to be concerned that the economy was growing too rapidly.

For home mortgage borrowers, the average national rates on the 30 year mortgage have risen from December's record low 4.71% rates; rates are now hovering in the 5 to 5.125% range.

Experts remain concerned that mortgage rates will creep higher soon - pointing to another Fed program slated to end in March. This program involved spending $1.7 trillion since January 2009 in the purchase of mortgage backed securities. The Fed's strategy was to provide liquidity in this market, which had all but stopped trading after the financial crisis first hit. (I'd be happy to explain the underpinnings of the whole financial crisis to anyone nerdy enough to ask!) Most economists agree this program has kept the interest rates on mortgages low in order to support a recovery in housing.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/15/MNSP1BVILP.DTL#ixzz0g0OXNViM

http://www.reuters.com/article/idUSTRE61H62I20100219?feedType=nl&feedName=ustopnewsearly

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/24/AR2010012402996.html?hpid=topnews