Minutes of the April/May Federal Open Market Committee (FOMC) recently released may have a significant impact on mortgage rates going forward. One significant development from the meeting suggests that the present quantitative easing (QE) program may be modified in the near future.
The current QE program involves the Fed purchasing $85 billion per month in mortgage backed securities (MBS) and Treasury bonds. The Fed’s goal with QE is keeping long-term interest rates, including mortgage rates, low.
Considerations mentioned in favor of slowing the current QE program include concerns over “buoyant” financial markets as evidence of a developing economic “bubble”. FOMC members in favor of continuing the current easing program cited fears of economic deflation resulting from cutbacks in QE.
Fed Chief Calls Current Bond Buying Program “Overheated”
In related news, Fed chairman Ben Bernanke, in testimony before Congress, characterized the current QE program as “overheating the economy,” but he also stated that slowing economic growth is a worse alternative than continuing the current QE program. Chairman Bernanke noted that QE is supporting financial markets and the economy and indicated that it is not time to reduce the Fed’s support.
Diverse opinions within the FOMC added to the impasse over QE, as one member advocated for immediate tapering of the QE program, while another proposed expanding QE purchases.
The FOMC noted a number of challenges including the national unemployment rate of 7.60 percent at the end of March, that private sector hiring plans were “subdued,” and that jobless claims had trended up during the inter-meeting period. Among numerous economic positive statistics cited, the Fed noted that consumer spending improved and was driven by higher automotive sales and a drop in fuel prices.
The FOMC minutes reflect that some members had concerns about the ability of consumer spending to hold without notable improvement in hiring and business investment. Businesses contacts of FOMC members were reluctant to plan additional hiring and investing in their businesses based on reports of decreased manufacturing and lower international demand for products.
Good News Revealed About Low Future Inflation Expectations
The Fed predicted modest inflation over the medium term, and expected inflation to remain subdued until 2015. The Fed will maintain its benchmarks for adjusting the Federal Funds Rate and QE based on the national unemployment rate reaching 6.50 percent and the inflation rate reaching 2.00 percent.
The FOMC characterized the improving housing market as responsible for economic improvements for related businesses, but also acknowledged that increasing demand for housing was being caused by low inventories of available homes rather than buyer enthusiasm alone.
Improving home prices and easier consumer credit terms were viewed as contributing to improvement in overall economic conditions. These factors increase household cash flow and provide consumers with more discretionary income for spending.
While the FOMC members did not agree on how or if to revise their current QE policy, it seems likely that the next meeting will bring increased scrutiny of QE and its impact on current economic conditions.
Flowerbeds can be a very attractive addition to any Collegeville home — if you have the time to set up and maintain them. Flowerbeds don’t necessarily require a profusion of costly flowers that need to be fertilized, mulched, covered during severe weather, and possibly re-planted on a yearly basis.
It can be very difficult to determine what your property is worth in the current marketplace, because you are biased by what the property is worth to you. These emotions can get in the way of impartially evaluating a property and often cause sellers to overprice their home.
Last week was jam-packed with economic news; here are some highlights with emphasis on housing and mortgage related news:
Going green is not just a new trend; it is a way of life that benefits not only the environment, but also your health — and your pocketbook.
Home builders are gaining confidence in current and future market conditions for new homes, but continue to see below-average foot traffic in new homes.
Everyone knows that first impressions are important. By carefully staging your home, you can positively influence the feelings your potential buyers have when they are viewing the property.
Mortgage rates rose last week with average rates a 30-year fixed rate mortgage rising from last week’s 3.35 percent to 3.42 percent with buyers paying all closing costs and 0.7 percent in discount points.
RealtyTrac recently reported that national foreclosure filings are down while foreclosure filings are seeing marked increases in some states.