The Fed and Mortgage Rates

by Alex Stenback on August 11, 2010

“the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.”

That snippet of  inimitably impenetrable prose from yesterday’s Federal Open Market Committee policy statement effectively means that interest rates, including mortgage rates, are likely to stay at incredibly low levels for a while. 

This no guarantee, mind you, but that’s the intent.

Another way to look at this: With the economy showing real signs of stagnation (without the HUGE amounts of Fed intervention, it might even be shrinking) the Fed is content to keep the pool full and the heater on.

While that’s a good thing for interest rates, don’t forget that someday, maybe sooner than we think, somebody is going to stroll by and drop a toaster into the deep end.

{ 1 comment… read it below or add one }

Jane August 11, 2010 at 10:09 am

Alex, I love your way with words! I don’t look forward to that toaster being dropped….

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