QE Program

FOMC Statement Shows Tapering Of QE Purchases

February 4, 2014 by · 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.

James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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QE Program

Fed Meeting Minutes Signal Mortgage Rates To Remain Low

September 19, 2013 by · 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 right now.

The Federal Reserve May Reduce Monthly 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.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

More Posts - Website

Follow Me:
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