Worried comments from Fed's Powell foreshadow even lower mortgage rates

Federal Reserve Chairman Jerome Powell has been out there again sounding the alarm about the potential for further damage to the economy from the coronavirus pandemic.

In his newest remarks, he worried aloud about the possibility of a second round of infections — which he said could bring a longer and more feeble recovery.

The Fed's words and actions have been helping to push mortgage rates to one new all-time low after another, and the chairman's newest statements could keep rates heading downward.

That would mean even better deals for borrowers buying homes and for homeowners looking to mow down their monthly payments by refinancing.

Powell's latest on the pandemic

For weeks, Powell has been on a kind of worry tour, spreading the message through speeches and TV appearances that the coronavirus pandemic is hammering the U.S. economy worse than anything we've seen since World War II, and urging the government to do more.

The U.S. House has said yes to giving Americans another batch of $1,200 relief payments — which have been going out by check, direct deposit and debit card — but the Senate so far hasn't addressed the idea of more of these so-called stimulus checks.

In his latest comments, Powell raised concerns about additional COVID-19 flare-ups.

"A full recovery of the economy will really depend on people being confident that it’s safe to go out," the chairman said, during a Princeton University webinar on Friday. "A second wave would really undermine public confidence, and might make for a significantly longer recovery, and weaker recovery."

Powell's previous warnings have helped to push mortgage rates lower and lower, and his new words could bring more of the same.

"Economic worries often do move interest rates, and as one of the most influential economic policymakers in the U.S., Chairman Powell’s words are very closely watched for future guidance," says Brendan Philips, capital markets analyst with the online mortgage lender Better.com.

The ongoing fears about the economy have had investors flocking into Treasury bonds as a safe place for their money. Bond prices have been rising, bond interest has been falling, and mortgage rates have gone along for the downhill ride.

Rates on 30-year fixed-rate mortgages are averaging a record-low 3.15%, according to mortgage giant Freddie Mac, but you can now find rates under 3% if you shop around enough.

Powell stands firm against negative interest rates

America's central bank has already slashed its benchmark interest rate to a record low, near zero, and speculation has been building that negative rates, below zero, are next.

But Powell has reaffirmed the Fed's position that it won't go negative, despite how central banks in other countries have done that.

"There are clearly some negative side effects as there sometimes are with these things," he said during the webinar. "It’s just not clear to my colleagues and to me ... that this is a tool that would be appropriate to deploy here in the United States."

Put very simply, when interest rates are negative, banks pay out interest to borrowers and charge depositors for holding onto their money.

Powell indicated the Fed would continue to rely on other measures in its "toolbox" to push mortgage and other interest rates lower, to help lift the ailing economy.

For example, the central bank has been buying up mortgage-backed securities — individual mortgages bundled into investments similar to bonds — and that campaign has contributed to declining mortgage rates.

Rates on home loans have room to fall further, says Realtor.com chief economist Danielle Hale.

"We expect mortgage rates to stay low and possibly slip lower. We’ll flirt with the 3% threshold for a while before we go below it," she says.

But never push your luck by "timing the market," because nobody really knows where rates are going to go. Compare mortgage rates from several lenders, and when you find a low rate that works for you, lock it — so it won't get away.