The Federal Open Market Committee voted today to keep the Federal Funds rate at 0-.25% – no surprise in that really. It was widely expected.
The Fed did surprise the markets by announcing they will ratchet up their purchases of mortgage-backed securities and start to purchase long term US Treasury Securities. To wit:
“To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, [Ed. note: They previously committed $500 billion, about half of which has been used up, so this is a massive expansion] bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.”
Those two sentences have sent the bond markets on a romp, and mortgage rates are dropping accordingly. We’ll need to see how this plays out – it’s still early – but between the ramped up purchases of mortgage securities and treasury securities, the stage seems set for mortgage rates to re-set lower by .25%-.5% and stay there for some time.
FRB Press Release & Full Statement [Federalreserve.gov]
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