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Orlando mortgage markets are impacted by a great number of factors including inflation, positive and negative economic forecast, and – at least indirectly – the actions of the Federal Reserve and its Open Market Committee.

The Federal Open Market Committee (FOMC) met Tuesday for its final sit down of 2009. It was a 2-day meeting and the Fed is expected to leave the Fed Funds Rate near 0.000 percent. However, this fact does not mean that Orlando mortgage rates will remain firm.

You see, it’s a common misconception that the Federal Reserve sets mortgage rates. This not the case. Mortgage rates are based on the price of mortgage-backed bonds, and they’re directly impacted by the rate at which investors are buying such bonds.

Take this historic example into account…

Since 2000, the Fed Funds Rate and the 30-year fixed rate mortgage have been as close to each other as 1 percent, and as far from each other as 6 percent. Such a spread would be impossible if there were a direct relationship between the two.

Put simply, the “Uncle Ben” Bernanke and the rest of the Federal Reserve crew do not set mortgage rates. Wall Street does. However, whenever the Fed adjourns from its meetings, mortgage rates often see added volatility.

For Orlando home buyers and Orlando mortgage rate shoppers, this week’s Fed meeting took on added significance.

Over the last half-year period, the Fed’s post-meeting minutes have confirmed its feeling that the economy is improving, albeit at a rate where growth is tempered by job loss and less than optimum consumer spending levels. In November, though, net job gains nearly went positive and Retail Sales data received a healthy shot in the arm.

Tuesday’s news from the FOMC predicts improves upon this positive economic outlook trend, Orlando mortgage rates will raise. This is because Wall Street will use the Fed’s position on the economy as a reason to buy stocks, and as a direct result, some of the cash to fuel these stock purchases will come from investor sales of mortgage bonds.

As extra bond supply money hits Wall Street, mortgage rates go up.

Should the FOMC’s release signal a more negative economic outlook, investors will likely sell their stock positions in favor of buying bonds. This makes Florida mortgage rates go down.

So, as you can see… the Federal Reserve doesn’t establish mortgage rates directly, but its actions do influence them.

Florida mortgage rate shoppers would be wise to watch for the FOMC’s 2:15 PM adjournment. Even though the Fed Funds Rate is expected to remain unchanged, mortgage rates certainly will not.