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Current mortgage rates, refinance rates expected to remain low

August 07, 2011

| Money Rates Columnist

The Federal Reserve decision to keep short-term interest rates near zero through the middle of 2013 sparked a sharp recovery in the stock market and ensured that current mortgage rates and refinance rates should remain low in the coming months.

At the same time, the Fed's decision ensured that interest rates on savings accounts and money market accounts are also likely to remain low.

The Fed's ruling was accompanied by a relatively bleak assessment of the U.S. economy, and according to The New York Times was a sign that the central bank doesn't expect to see an expansion of the economy that will drive up income and prices. Typical consumers are not likely to see a big increase in the balances of their checking accounts, online savings accounts or money market accounts because unemployment is expected to remain high and wages won't rise significantly, the Times said.

Still, the Fed is hoping its decision will spur investment in the stock market, seen as a riskier strategy than putting money into savings accounts. Even the best CD rates and best savings accounts will not pay much interest, so people may decide to put their money to work by buying stock or making other investments.

The stock market was able to gain back about half of what it lost in early August after Standard & Poor's reduced the U.S. debt rating from AAA to AA+ on the heels of the scary Washington debate on the debt ceiling. Investors also were in a hurry to lock in yields on Treasury bonds. This drove down interest rates on the 10-year Treasury notes and signaled the likelihood that current mortgage rates and refinance rates would also go down as well.

The Fed noted that spending by businesses for equipment and software was on the rise but that consumer spending remained flat, the housing market remained depressed and investments in commercial properties were weak--all signs of a troubled economy.

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