Federal Reserve Category
According to a statement provided by the Federal Open Market Committee of the Federal Reserve, the committee has approved another reduction of the Fed’s monthly asset purchases.
The adjustment will be made in February and cuts monthly purchases of mortgage backed securities from $35 billion to $30 billion and monthly purchases of Treasury securities from $40 billion to $35 billion.
FOMC began reducing its asset purchase under its quantitative easing program in January, when the monthly purchases of mortgage-backed securities and Treasury securities was reduced from $85 billion per month to $75 billion.
Citing its goals of maximum employment and price stability, the FOMC said that it has seen consistent improvement in the economy and specifically mentioned a lower, but still elevated unemployment rate. The statement also indicated that the FOMC expected labor markets to improve.
FOMC Asset Purchases: How They Impact Mortgage Rates
The Fed initiated the QE program in an effort to control rising long-term interest rates, which include mortgage rates. Yesterday, the FOMC statement said that Fed expects its purchases of longer-term assets will continue to control long-term interest rates and mortgage rates while supporting mortgage markets.
FOMC’s statement reported that it sees the risks to its economic outlook and the labor market as having become nearly balanced. The FOMC is still looking for inflation to reach its 2.00 percent goal.
Fed Monetary Policy To Remain “Highly Accommodative”
The Fed intends to maintain a highly accommodative stance on monetary policy after the QE asset purchases end and the economy is significantly stronger. The current Federal Funds Rate of between 0.00 and 0.250 percent will be maintained at least until the national unemployment rate drops below 6.50 percent.
FOMC members reaffirmed their commitment to monitoring economic indicators as part of any decision to alter current QE measures or the Federal Funds Rate.
Indicators Mentioned In The FOMC Statement Include:
- Additional indicators of labor market conditions
- Inflationary pressures and expectations
- Readings on financial developments
FOMC statements have consistently included the committee’s assertion that no arbitrary benchmark alone will be sufficient for the committee to change either QE asset purchases or the Federal Funds Rate.
FOMC stated that it will seek a “balanced approach consistent with its longer-run goals of maximum employment and inflation at two percent.”
Although fears of tapering the Fed’s monthly asset purchases may persist, it appears that each FOMC decision to reduce asset purchases under the QE program indicates economic growth.
Housing Starts exceeded expectations and also beat October’s reading of 889,000. November housing starts were posted at 1.09 million against a consensus of 963,000.
This reading is more in line with the NAHB/Wells Fargo Home builder Market Index, which reached a four month high with December’s reading.
With that threat resolved and a new federal budget passed, builders can now proceed without worrying about setbacks caused by government shutdowns and legislative gridlock.
Building permits issued in November were slightly lower at 1.01 million than October’s reading of 1.04 million. Viewed as an indicator of future construction, and ultimately, available homes, it is not unusual for construction and permits to slow during the winter months.
FOMC Statement And Chairman Bernanke’s Last Press Conference
Throughout 2013, strong signs of economic recovery have led to predictions of the Federal Reserve tapering its quantitative easing program.
As each FOMC meeting approached, analysts predicted that the Fed would start reducing its $85 billion purchases of Treasury and mortgage-backed securities.
The asset purchases are part of the government’s quantitative easing program that was implemented to keep long-term interest rates and mortgage rates low.
The cut finally came on Wednesday as the FOMC made its customary post-meeting statement. Effective in January 2014, the Fed will reduce its monthly purchases by $10 billion.
The QE purchase will be split between $40 billion in Treasury securities and $35 billion in MBS. The Fed expects that the economy will continue recovering at a moderate pace.
The FOMC statement noted that the Fed will continue monitoring inflation, which remains below the Fed’s target rate of 2.00 percent, and the national unemployment rate, which remains above the Fed’s target rate of 6.50 percent.
The statement noted that asset purchases are not on a predetermined course, and that the Fed will continue to closely monitor labor market conditions, inflation pressure and economic developments in the U.S. and globally.
The Fed did not change its target federal funds rate of 0.00 to 0.25 percent, and would not do so at least until unemployment falls to 6.50 percent. Changes to policy accommodation are made with the Fed’s dual goal of achieving an inflation rate of 2.00 percent and achieving maximum national employment goals.
Bernanke Press Conference
Mr. Bernanke repeated key points of the FOMC statement, and noted that “highly accommodative monetary policy and waning fiscal drag” is helping with the economic recovery, but that the economy has much farther to go before it can be considered fully recovered.
Mr. Bernanke said that FOMC members saw the unemployment rate dropping from 7.00 percent in November 2013 to 6.30 to 6.60 percent in the fourth quarter of 2014. Improving labor markets and rising household spending were cited as signs of economic recovery.
Mr. Bernanke mentioned concerns about the high unemployment and underemployment rates and said that the Fed’s benchmarks for unemployment and inflation would not automatically trigger reductions in its QE asset purchases.
He also said that the committee did not expect to adjust the target federal funds rate immediately after the national unemployment rate reaches 6.50 percent.
Mr. Bernanke repeated that the Fed’s actions regarding monetary policy and QE would be dependent on in-depth review of ongoing financial and economic developments, but said that further tapering of QE purchases is likely if the economy stays on its present course of moderate improvement.
The minutes of last month’s Federal Open Market Committee (FOMC) meeting show significant support for tapering the Fed’s current amount of monthly securities purchases. These purchases, known as quantitative easing (QE), are an effort to maintain lower long-term interest rates including mortgage rates.
The Fed has been buying $85 billion per month in Treasury securities and mortgage-backed securities (MBS).
Ben Bernanke, chairman of the Federal Reserve and FOMC has hinted at “tapering” the Fed’s securities purchases by year-end in recent statements. The FOMC minutes released Wednesday further suggest that tapering based on strengthening economic trends is likely.
FOMC Members Express Mixed Views
The minutes for the last FOMC meeting, which took place on July 30 and 31, states that many members are “broadly comfortable” with tapering QE securities purchases later this year if the economy continues to improve. At the same time, many FOMC members indicated that it “isn’t yet time” to scale back the purchases.
All along, the FOMC has emphasized that it will closely monitor domestic and global financial and economic developments as part of its decision about when tapering the QE purchases will begin.
The minutes for July’s meeting reflected this sentiment and noted “A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases.”
On the other side of the issue, the minutes note that a few members said that “It might soon be time to slow somewhat the pace of purchases as outlined in the QE plan.”
QE Tapering Not The Only Influence On Mortgage Rates
The Fed is likely to monitor its words as well as economic conditions, as previous announcements about tapering QE made by Chairman Bernanke and FOMC have created havoc in world financial markets.
In relation to mortgage rates, it’s likely that tapering QE purchases will cause mortgage rates to rise. Demand for bonds will fall as the Fed reduces its purchases, falling bond prices usually cause mortgage rates to rise.
It’s important to keep in mind that tapering QE securities purchases is only one among many things that can impact financial markets, mortgage rates and the economy.
While the Fed is expected to begin tapering its securities purchases as soon as September, developing economic news throughout the world can potentially impact mortgage rates and could cause the Fed to revise its timeline for tapering the volume of its securities purchases.
There was potentially good news for mortgage rates on Wednesday as the Fed’s Federal Open Market Committee (FOMC) announced that its quantitative easing (QE) program would remain unchanged for the present.
Economists expect the Fed to begin tapering the amount of QE toward the end of the year in accordance with Chairman Ben Bernanke’s previous statements that “tapering” would likely begin near year-end.
No specific date for reducing the QE assets purchases was given.
Chairman Bernanke has previously indicated that the Fed will closely review domestic and global economic developments as part of its decision-making process for changing the QE program. Wednesday’s FOMC statement reaffirmed this plan.
Fed Cites Economic Expansion and Improving Labor Conditions
The FOMC statement cited modest economic expansion, improving labor markets and continued high unemployment levels as a basis for continuing its current level of QE.
The Fed’s mandate requires it to support price stability and low unemployment; reversals in these or other economic areas could cause the Fed to continue its QE at present levels. At present, economists expect QE to end in mid-2014.
The FOMC statement also indicated that the target federal funds rate will remain between 0.00 and 0.25 percent at least until the national unemployment rate falls to 6.50 percent. Chairman Bernanke did not give a press conference after Wednesday’s statement was released.
Quantitative Easing: Monthly Purchase of MBS, Treasury Securities Intended to Control Mortgage Rates
The Fed currently purchases $40 billion in mortgage-backed securities (MBS) and $45 billion in Treasury securities monthly. These purchases are intended to control long-term interest rates including mortgage rates.
When the Fed begins tapering and eventually concludes these asset purchases, demand for MBS and Treasury securities are expected to fall and their prices will likely fall as well. When prices for bonds include MBS fall, mortgage rates traditionally rise.
With mortgage rates recently moving up, reducing the level of the Fed’s QE asset purchases is cause for concern. Higher mortgage rates make homes less affordable; the combination of rising home prices and mortgage rates presents challenges for first-time home buyers and others without sufficient funds for meeting higher down payments and monthly mortgage payments.
Now would be a very good time to ask your trusted real estate professional for a personal review of your home financing situation. Give them a call and ask for your private assessment today.
FOMC Minutes Suggest QE Tapering by Year-End
The minutes for June’s meeting of the Federal Open Market Committee (FOMC) suggest that committee members are mostly in agreement that the current quantitative easing program (QE) should begin winding down by year end, but the committee minutes are very clear concerning the committee’s intention to monitor inflation and ongoing economic and financial developments before taking action to reduce the current rate of QE.
The Fed currently purchases $85 billion monthly in Treasury securities and mortgage-backed securities (MBS). Investors fear that if the Fed rolls back QE too soon or too fast, it could cause long term interest rates such as mortgage rates to rise faster.
The Fed minutes indicate that factors the Fed will continue monitoring before making changes to QE include:
- Labor market conditions
- Indicators of inflationary pressures
- Readings on financial developments
FOMC members also agreed that the Fed would not sell MBS it has accumulated after the economic support program ceases. When the Fed ceases QE, demand for mortgage-backed securities is expected to fall. If the Fed were to sell off MBS holdings in addition to stopping QE, MBS prices could fall sharply. In general, when MBS prices fall, mortgage rates rise.
The FOMC minutes indicate that the Fed intends to maintain the Federal Funds rate at 0.000 to 0.250 percent “for a considerable time after the monthly asset purchases cease.” To be clear, the minutes do not reveal any specific dates for starting to wind down the program.
Concerns over financial conditions in Europe highlight the Fed’s intention to monitor global economic developments were discussed. Potential “spillover” of negative sentiments in response to Europe’s economic woes to U.S. financial markets were seen as a potential threat to the U.S. economic recovery.
Committee members found that although the economy showed moderate improvement since its last meeting, the national unemployment rate remains high at 7.60 percent. Members also noted that the numbers of long-term unemployed and those working part time jobs but wanting full time jobs remain higher than average. These conditions traditionally keep consumers from buying homes.
Housing: Upside-Down Mortgages Decreasing
Due to rapid increases in home values, the committee noted that fewer homeowners were under water on their mortgage loans. This is good news as homeowners can rebuild household wealth as their home equity increases. Having home equity also provides homeowners with the flexibility to sell or refinance their homes.
While housing is driving the economic recovery, high unemployment will likely keep the Fed from changing its QE policy in the short term.
Now may be a very good time to take advantage of still historically low mortgage interest rates before they rise. If you have specific questions on purchasing or refinancing your home mortgage loan and how these changes may affect you, please contact your trusted real estate professional today.
Minutes of the April/May Federal Open Market Committee (FOMC) recently released may have a significant impact on mortgage rates going forward. One significant development from the meeting suggests that the present quantitative easing (QE) program may be modified in the near future.
The current QE program involves the Fed purchasing $85 billion per month in mortgage backed securities (MBS) and Treasury bonds. The Fed’s goal with QE is keeping long-term interest rates, including mortgage rates, low.
Considerations mentioned in favor of slowing the current QE program include concerns over “buoyant” financial markets as evidence of a developing economic “bubble”. FOMC members in favor of continuing the current easing program cited fears of economic deflation resulting from cutbacks in QE.
Fed Chief Calls Current Bond Buying Program “Overheated”
In related news, Fed chairman Ben Bernanke, in testimony before Congress, characterized the current QE program as “overheating the economy,” but he also stated that slowing economic growth is a worse alternative than continuing the current QE program. Chairman Bernanke noted that QE is supporting financial markets and the economy and indicated that it is not time to reduce the Fed’s support.
Diverse opinions within the FOMC added to the impasse over QE, as one member advocated for immediate tapering of the QE program, while another proposed expanding QE purchases.
The FOMC noted a number of challenges including the national unemployment rate of 7.60 percent at the end of March, that private sector hiring plans were “subdued,” and that jobless claims had trended up during the inter-meeting period. Among numerous economic positive statistics cited, the Fed noted that consumer spending improved and was driven by higher automotive sales and a drop in fuel prices.
The FOMC minutes reflect that some members had concerns about the ability of consumer spending to hold without notable improvement in hiring and business investment. Businesses contacts of FOMC members were reluctant to plan additional hiring and investing in their businesses based on reports of decreased manufacturing and lower international demand for products.
Good News Revealed About Low Future Inflation Expectations
The Fed predicted modest inflation over the medium term, and expected inflation to remain subdued until 2015. The Fed will maintain its benchmarks for adjusting the Federal Funds Rate and QE based on the national unemployment rate reaching 6.50 percent and the inflation rate reaching 2.00 percent.
The FOMC characterized the improving housing market as responsible for economic improvements for related businesses, but also acknowledged that increasing demand for housing was being caused by low inventories of available homes rather than buyer enthusiasm alone.
Improving home prices and easier consumer credit terms were viewed as contributing to improvement in overall economic conditions. These factors increase household cash flow and provide consumers with more discretionary income for spending.
While the FOMC members did not agree on how or if to revise their current QE policy, it seems likely that the next meeting will bring increased scrutiny of QE and its impact on current economic conditions.
Wednesday’s Federal Open Market Committee (FOMC) statement indicates the Federal Reserve’s commitment to keeping long term interest rates and inflation under control.
The Fed will continue monitoring inflation, but does not expect inflation to rise more than 0.50 percent above its target rate of 2.00 percent over the next one to two years.
Ongoing monitoring of inflation and unemployment, as well as developing economic news, will guide the Fed in its future determinations concerning policy for its present iteration of quantitative easing (QE3).
Currently, the Fed purchases $85 billion of treasury securities and mortgage –backed securities each month with the goal of keeping long-term interest rates lower.
This includes mortgage rates, which can assist homebuyers with qualifying for mortgage loans in an environment of increasing home prices. Other goals include stabilizing the labor market, and limiting inflation.
Job Growth To Be Determining Factor On Fed Interest Rate Action
The statement also noted that the Fed will keep its interest rates between 0.00 and 0.25 percent, until the Fed sees the national unemployment rate fall below 6.50 percent.
While noting that the housing sector is improving, the Fed stated concerns about ongoing high unemployment rates. Jobs are a key aspect to supporting the economy, as 70 percent of the U.S. economy involves the purchase of goods and services by consumers.
The Fed also repeated its position to evaluate the efficacy of its quantitative easing program; if the agency finds that the program is not achieving their desired objectives, changes to the program can be expected.
While a clear majority of FOMC members voted to keep current policies intact, one member voted against this course of action citing the potential for continued quantitative easing at current levels to fuel inflation.
The bottom line for today’s statement is that the Fed continues its “wait and see” position concerning quantitative easing and low federal interest rates.The committee also re-asserted its intention to gradually reduce quantitative easing when it’s time for a change.
In addition, the Fed is committed to monitoring a wide range of economic data with an eye toward adjusting its policies in the best interest of economic recovery.
The Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the Federal Funds Rate within its current range of zero to 0.25 percent, and to continue its current stimulus program of purchasing $85 billion monthly in Treasury bonds and mortgage-backed securities (MBS).
Citing weather-related events such as Hurricane Sandy and drought in the Midwest, the committee said in its statement that information received since its December 2012 meeting “suggests that growth in economic activity has paused in recent months in large part because of weather-related disruptions and other transitory factors.”
Concerns over the then-looming fiscal cliff crisis may have also contributed to the economic contraction during the last quarter of 2012. Positive economic trends observed by the Fed included:
- Improved household spending
- Improving housing markets
- Growth in business fixed investments
The Fed initiated its third round of quantitative easing (QE3) in September as part of an ongoing effort to hold down interest rates and to encourage business spending. The benchmark Federal Funds Rate will remain between zero and.0.25 percent until the unemployment rate falls to 6.5 percent and provided that inflation remains stable.
The Fed Funds Rate has stayed near zero since December 2008.
The national unemployment rate was 7.8 percent in December, and Wall Street expects it to be 7.7 percent for January. The Department of Labor will release its monthly jobs report on Friday; this report includes the monthly unemployment rate. Inflation is expected to remain at or below the Fed’s target level of 2.0 percent or less for the medium-term.
While noting that “strains on global financial markets have eased somewhat,” the FOMC said that it “continues to see downside risks to the economic outlook.” Low overall interest rates and gradual inflation work in favor of home buyers as home prices and mortgage rates are likely to rise at a gradual pace.
Mortgage rates in Boulder improved slightly after the FOMC release.
The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.
For the tenth consecutive meeting, the FOMC vote was nearly unanimous. Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.
The Fed Funds Rate has been near zero percent since December 2008.
In its press release, the Federal Reserve noted that, since its last meeting in late-October, the U.S. economy has expanded “at a moderate pace” despite “weather-related disruptions”. It also acknowledged that “strains in global financial markets” remain a threat to U.S. economic growth.
This comment is in direct reference to the Eurozone, its sovereign debt concerns, and its nation’s economies.
The Fed included the following observations in its statement, too :
- Growth in employment is expanding but unemployment is elevated
- Inflation pressures are stable, and below the Fed’s target range of 2%
- Business spending on equipment and structures has slowed
In addressing the housing market, the Fed said that there has been “further signs” of improvement and the group re-affirmed its commitment to the $40-billion monthly QE3 bond buying program.
QE3 is meant to suppress U.S. mortgage rates from rising too high, too quickly.
Lastly, the Federal Reserve announced an explicit economic target for when it will begin to consider raising the Fed Funds Rate from its current target range near 0.000%. When the national Unemployment Rate reaches 6.5%, the Fed said, it will likely move to start raising its benchmark borrowing rate.
Previously, the Fed had provided only a date-based target of mid-2015.
The 6.5% Unemployment Rate target may be pre-empted by rising inflation rates. The Fed does not expect price pressures to mount prior to jobless rates dropping from the current 7.7% levels, however.
Mortgage rates in Longmont are rising post-FOMC announcement. Many lenders raised mortgage rates mid-day Wednesday in response to the Fed’s statement.
The FOMC’s next scheduled meeting is a two-day event scheduled for January 29-30, 2013.
The Federal Open Market Committee (FOMC) begins a 2-day meeting today, its last of 8 scheduled meetings this year.
The Federal Open Market Committee is a 12-person subcommittee within the Federal Reserve. It’s the group which votes upon U.S. monetary policy.
The monetary policy action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight.
Since late-2008, the Fed Funds Rate has been near zero percent.
Prime Rate, a business and consumer interest rate used in lines of credit and credit card rates, is based on the Fed Funds Rate. Prime Rate has been similarly unchanged since 2008.
One rate which the Federal Reserve does not set is the 30-year fixed rate mortgage (FRM) rate.
Like all other mortgage rates, the 30-year FRM is based on the market value of mortgage-backed bonds; securities bought and sold by investors.
There is no correlation between the Federal Reserve’s Fed Funds Rate and the everyday homeowner’s 30-year fixed rate mortgage rate. Some months, the two rates converge. Other months, they diverge. Since 2000, they’ve been separated by as many as 5.29 percentage points.
They’ve been as close as 0.52 percentage points.
However, although the Federal Reserve does not set U.S. mortgage rates, that doesn’t mean that it can’t influence them. The Fed’s post-meeting press release has been known to make mortgage rates get volatile.
If, in its post-meeting press release, the Fed notes that the U.S. economy is slowing and that new economic stimulus is warranted, mortgage rates will likely fall throughout Colorado. This is because additional Fed stimulus would likely lend support to U.S. mortgage markets which would, in turn, boost demand for mortgage-backed bonds.
Conversely, if the Fed acknowledges stronger-than-expected growth in the U.S. economy and no need for new stimulus, mortgage rates are expected to rise.
Either way, mortgage rates will change Wednesday upon the FOMC’s adjournment — we just don’t know in which direction. Rate shoppers may see fluctuations of as much as 0.250 percent.
The FOMC adjourns at 12:30 PM ET.