The 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.
Topics: Mortgage Based Securities, Federal Reserve, Quantitative Easing