Archive

Archive for the ‘Federal Reserve’ Category

FOMC Statement Shows Tapering Of Quantitative Easing Purchases

February 4, 2014 Leave a comment

FOMC Statement Shows Tapering Of Quantative Easing PurchasesAccording 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.

Fed Minutes Predicts Tapering Of Quantitative Easing Program

December 19, 2013 Leave a comment

Fed Meeting Minutes Display Strong Signs Of Economic ReceoveryHousing 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.

Fed Meeting Minutes Show Hope In Economic Growth

November 21, 2013 Leave a comment

Fed Meeting Minutes Show Hope In Economic GrowthThe minutes of the Federal Reserve’s Federal Open Market Committee meeting held October 29 and 30 were released Wednesday. The meeting began with a report from the Manager of the System Open Market Account and included updates on developments within domestic and foreign financial markets.

According to the report, no intervention by the Federal Reserve was required on foreign currencies during the period between the last and current FOMC meetings.

FOMC: Key Data Delayed by Shutdown

The FOMC noted moderate economic growth in the period since its last meeting, but also noted that several federal agencies delayed release of key statistics due to the government shutdown in early October. The FOMC minutes included updates on several economic sectors including:

Labor: Private non-farm payrolls for September increased at a slower rate than for August and the unemployment rate remains high at 7.20 percent. The FOMC has set a target unemployment rate of 6.50 percent as a benchmark for considering changes to the Fed’s quantitative easing program, which supports lower long-term interest rates and mortgage rates.

A high rate of part-time employment and a slight drop in full-time employment may indicate why would-be home buyers remain on the sidelines. FOMC members noted that while weekly unemployment claims rose during some weeks in October, this was likely fall-out related to the government shutdown.

Manufacturing: Production rose slightly, but was flat other than for motor vehicles. The committee expected to see gains in production in the near term.

Personal Consumption Expenditures: This sector rose in August and retail sales excluding autos were significantly higher in September. Factors impacting consumer spending were mixed. Homeowners enjoyed increasing home prices and home equity, but overall consumer sentiment declined even as disposable income increased in August.

Housing: The committee said that little current data was available for the housing sector due to the shutdown. Building permits and housing starts for single family homes rose in August. After a significant drop in July, sales of new homes rose in August while sales of existing homes fell. Pending home sales also fell during August and September.

Quantitative Easing: FOMC members decided not to alter its current QE program during its September meeting; this caused investors and analysts to revise their expectations for the Fed taking action to reduce its current pace of $85 billion in monthly bond purchases.

Expectations for the total amount of asset purchases under QE were revised upwardly, which suggested that no major changes in current Fed monetary policy is anticipated.

Overall, the minutes of October’s FOMC meeting echoed the committee’s recent perception of moderate economic growth as expressed during its 2013 meetings, and its intention to maintain asset purchases and the target federal funds rate at current levels in the coming months.

Fed Meeting Minutes Expose Mortgage Rates As Remaining Historically Low

September 19, 2013 Leave a comment

Fed Meeting Minutes Expose Mortgage Rates As Remaining Historically LowThe Federal Open Market Committee of the Federal Reserve decided not to reduce the Fed’s current quantitative easing program of purchasing $85 billion monthly in Treasury securities and mortgage-backed securities.

Going against wide expectations that the Fed would reduce the QE purchases, Fed Chairman Ben Bernanke said that current economic conditions aren’t strong enough to warrant tapering.

The Federal Reserve May Reduce Monthly Securities Purchases

The FOMC, which sets monetary policy for the Federal Reserve has hinted that it might soon reduce the monthly securities purchases, but has also stated that it would closely review emerging economic news and conditions as part of any decision to reduce the securities purchases under QE.

Chairman Bernanke clearly indicated that the decision to reduce asset purchases would be “deliberate and dependent” on economic developments.

He underscored this point by saying that benchmarks for tapering QE purchases “are not triggers, but targets” and that no automatic tapering of QE purchases would be made only because an economic benchmark had been met.

The two benchmarks associated with QE are a national unemployment rate of 6.50 and a target inflation rate of 2.00 percent. The Fed expects that inflation will gradually increase, but is likely to remain below 2.00 percent through 2016.

The Fed chairman noted that the unemployment rate has decreased from 8.10 percent to 7.30 percent year-over-year, he said that the jobless rate remains “unacceptable.”

The current QE program, which involves the monthly securities purchases and keeping the target federal funds rate at between 0.00 and 0.25 percent was implemented a year ago.

Chairman Bernanke repeated the FOMC position that the federal funds rate would be kept at the current target rate as “no meaningful change can be made.” It’s likely that the federal funds rate will remain at its lowest target level through 2015.

Fed Expects Moderate Economic Improvement

Chairman Bernanke remarked that tight credit policy could be hampering economic recovery and that the FOMC expected a gradual reduction in “financial headwinds” affecting the economy.

After making the post-meeting statement for FOMC, Mr. Bernanke conducted a press conference. His responses to media questions strongly emphasized the Fed’s intention to maintain open communications with the media.

The chairman seemed concerned that the Fed’s prior statements about possible changes to QE had been misunderstood.

The Fed’s decision to maintain QE asset purchases at current levels are expected to help keep mortgage rates low. Although mortgage rates have been rising since May, they remain historically low.

News for housing starts and building permits issued for August support the Fed’s position that economic recovery is lagging behind expectations. Housing Starts came in at 891,000 as compared to expected starts of 921,000, but were higher than July’s reading of 883,000 housing starts.

Building permits for August also fell shy of expectations; 918,000 permits were issued and fell short of the 955,000 expected building permits. 954,000 building permits were issued in July.

Fed Meeting Minutes Reflect Support For Reducing QE Program

August 22, 2013 Leave a comment

Fed Meeting Minutes Reflect Support For Reducing QE ProgramThe 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. 

Fed Meeting Statement Positive For Ongoing Mortgage Sector Support

August 1, 2013 Leave a comment

Fed Meeting Statement Positive For Ongoing Mortgage Sector Support

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 mortgage professional for a personal review of your mortgage situation.  Give them a call and ask for your private assessment today.

FOMC Minutes Reveal Fed May Curb Economic Support Program Before Year End

FOMC Minutes Reveal Fed May Curb Economic Support Program Before Year EndFOMC 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 mortgage professional today.

%d bloggers like this: