The Fed Stays the Course
-Tim McLaughlin, VP Weichert Financial Services
The Federal Reserve repeated its pledge to keep interest rates “exceptionally low” for “an extended period” and said the economy is strengthening.
“Household spending appears to be expanding at a moderate rate” the Federal Open Market Committee said in a statement Wednesday after meeting in Washington. Deterioration in the labor market is “abating.”
Chairman Ben S. Bernanke, who faced a confirmation vote for a second term by the Senate Banking Committee yesterday, is battling what he calls “significant headwinds” of declining credit and continuing job losses. However, he did state that the economy has returned to growth after the deepest recession since the 1930s.
Officials kept their benchmark overnight lending rate between banks in a range of zero to 0.25 percent, where it has been for a year. Policy makers restated that low interest rates are contingent on “low rates of resource utilization, subdued inflation trends, and stable inflation expectations,” which we continue to see in the financial sectors.
“Inflation will remain subdued for some time,” the statement said. The consumer price index, minus food and energy, rose 1.7 percent for the 12 months ending November, unchanged from October, the Labor Department reported yesterday.
The Fed said it will continue purchases of agency mortgage- backed securities totaling $1.25 trillion and about $175 billion of agency debt through the first quarter of next year.
The FOMC met after a week of reports suggesting economic growth picked up in the fourth quarter. Retail sales climbed 1.3 percent in November, twice as much as anticipated in a Bloomberg News survey of economists. Inventories rose in October for the first time since August 2008, and exports in the same month increased to the highest levels in 11 months.
Takeaways: The FOMC has committed to low long term Fed Funds rates as long as inflation is in check, however, they did reiterate that they anticipate winding down the MBS purchase program by the end of 1Q10 when they have reached their $1.25 trillion benchmark (they are $147B away as of last count). So, for the short term, we continue to see Fixed Rate Mortgages in the high 4%/low 5% range, however, there continues to be conjecture on how much rates will actually rise once the purchase program comes to a close. Want to capitalize on the Feds MBS investments while rates are historically low? Talk to your Weichert Gold Services Manager today!