The Federal Open Market Committee decided Wednesday to keep purchasing additional agency mortgage-backed securities at its current pace to foster the ongoing housing recovery and fight unemployment.
In other words, the market was tricked — no tapering just yet — despite numerous predictions of a $10 billion reduction in monthly asset purchases by the Fed.
The FOMC made that conclusion after members met this week and announced that although the housing sector is strengthening, “mortgage rates continues to rise further and fiscal policy is restraining economic growth.”
As a result, the central bank will continue purchasing agency MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion a month. Yields on 10-year Treasurys dipped from a daily high of 2.9% to below 2.8% on the news. Yields on Fannie Mae and Freddie Mac bonds also dropped, according to Bloomberg, with spreads between MBS and the 10-year swap winding 6 basis points closer.
“The committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy,” FOMC members said.
They added, “However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”
The vote for the statement was 11 to 1 with Esther George, president of the Federal Reserve Bank of Kansas City dissenting because she was concerned that the continued high level of bond-buying program increased future economic risks.
The majority of mortgage analysts noted that the Fed’s decision to not begin scaling back its monetary stimulus wasn’t bad news — it was just not what was desired.
“Concerns over budgets, deficits and payments along with other news are tending to keep consumer and business confidence from expanding as rapidly as one would expect,” explained National Association of Realtors economist Jed Smith.
He added, “Currently, existing-home sales are at levels significantly above those of last year and should remain positive for the foreseeable future – in terms of sales and price. Given interest rates, household formations and gradually easing conditions most economists project increasing growth.”
http://www.housingwire.com/articles/26914-fed-halts-qe-wind-down