The Federal Open Market Committee holds a one-day meeting today, its 8th scheduled meeting of the year and 10th overall.

The FOMC is part of the Federal Reserve, the government group that sets U.S. monetary policy. The Fed’s primary policy-setting tool is an interest rate known as the Fed Funds Rate.  The Fed Funds Rate is the interest rate at which banks borrow money from each other. 

2 years ago Thursday, in an effort to jump-start the economy, the FOMC met and voted to lower the Fed Funds Rate to as close to zero percent as possible without actually going to zero percent; the benchmark rate was prescribed to a range of 0.000-0.250 percent.

The Fed Funds Rate had never been set so low before, but ever since, it’s been held to that range. It will likely be there until early-2011, too, but that doesn’t mean that mortgage rates won’t change today when the Fed adjourns today.

Because the Fed Funds Rate has been so low for so long, businesses and consumers have been able to borrow money cheaply. As a result, both capital and household spending have been on the rise lately, creating tailwinds for the economy.

The Fed is expected to acknowledge this today which, in turn, should lead mortgage rates higher.  This is because, in the current recovery cycle and until markets find balance, what’s good for the economy tends to be bad for rates in Cincinnati.

The Fed’s press release today will be a focal point for markets.  Talk of higher-than-expected inflation or better-than-expected growth, and mortgage rates should rise. Talk of a slowdown should lead rates lower.

Either way, we can’t be certain what the Fed will say — or do — this afternoon. If you’re floating a mortgage rate, the safe move is to lock before 2:15 PM ET today.

Mortgage markets reeled Wednesday after the Federal Reserve released the minutes from its January 26-27, 2010 meeting. Mortgage rates in Ohio are now at their highest levels since the start of the year.

The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It’s a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers’ policy decisions.

The Minutes is a terrific look into the Fed’s collective mind and, yesterday, Wall Street didn’t like what it saw.  Specifically, the report disclosed that:

1. The Fed plans to break support for mortgage markets after March 31, 2010
2. Raising the Fed Funds Rate will be a key part of the Fed’s strategy to tighten monetary policy
3. The fundamentals behind consumer spending strengthened modestly

Furthermore, the Fed Minutes said that there is a growing risk of “higher medium-term inflation”. Inflation, of course, is awful for mortgage rates.

Overall, the Fed’s economic optimism appeared stronger after its January meeting as compared to its December one.  A stronger economy should lead to better job growth and higher home prices throughout 2010.

Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more.  Therefore, if you’re buying a home in the near-term, or know you’ll need a new mortgage, consider moving up your time frame. 

Every 1/8 percent makes a difference in your household budget.

The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It’s the first of 8 scheduled meetings for the policy-setting group in 2010.

The group adjourns at 2:15 PM ET.

As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country’s current economic condition, and the outlook for the near-term future.

The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up.  Every word, sentence and phrase is carefully dissected in the hope of gaining an investment edge over other active traders.

It’s for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically re-balancing its bets.

Today should be no different.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it’s been in history.  However, it’s what the Fed says Wednesday that will matter more than what it does.

After the Fed’s last meeting in December, it made several observations:

1. The jobs market is getting “less worse”
2. The housing sector is making improvements
3. Financial markets are stabilizing further

The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead.  Furthermore, inflation remains in check.

As compared to December’s press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates in Cincinnati to rise as Wall Street moves its money from bonds to stocks.

Conversely, reference to slower growth in 2010 should lead rates lower.

We can’t know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone’s guess.