In a surprise move, the Federal Reserve voted last Wednesday to continue its stimulus through the buying of securities, including the continuation of purchases ofagency mortgage-backed securities at a pace of $40 billion per month, as well as longer-term Treasury securities at a pace of $45 billion per month. This went against the expected and anticipated notion that the Fed was considering tapering, or slowing down, of its stimulus efforts.
In its decision, the Fed cited concerns regarding the rate of growth in the economy as a whole, as well as concerns about the recent trend of rising mortgage rates at a time when the housing market is starting to recover from the Great Recession of 2008.
At a press conference last Wednesday, Fed Chairman Ben Bernanke stated that the Fed, by its decision, is “avoiding a tightening until we can be comfortable that the economy is in fact growing the way that we want it to be growing.”
One of the significant impacts of this decision was that The Fed’s bond purchases benefit borrowers by pushing down long-term interest rates. The yield on the benchmark 10-year Treasury note dropped sharply after the Fed announcement. Rates on mortgages and many other consumer and business loans tend to parallel the 10-year Treasury’s yield, and also saw declines in rates following the Fed announcement.
According to Gus Faucher, a senior economist at PNC Financial Services Group, “It helps people who are looking to buy a house in the near term.” In addition, Mr. Faucher also stated that “it makes housing more affordable. That’s one reason the Fed decided not to act — to make sure the recovery in the housing market continues.”
What does this all mean? Essentially, the Fed decided not to discontinue the buyback of asset-backed securities, at least for now, due in part to concerns about rising mortgage rates and their impact on the housing market, which has been gradually improving throughout this year. Therefore, the expectation is that there will be no tapering by the Fed, and any efforts to decrease the Fed’s stimulus will not occur in the short term, thereby keeping mortgage rates lower, at least for now.
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The Jason White Team
Century 21 Four Seasons Realty
1441 Wiley Oakley Dr
Gatlinburg, TN 37738
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