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Federal Reserve Confirms Purchase of MBS to Cease

January 29, 2010 by  
Filed under Featured, Finance, National

federal buildingAs predicted (Interest Rates of 5% May Never Be Seen Again! Here’s Why.), the Federal Open Market Committee (FOMC) has confirmed that the program created to help repair economic recovery through the purchase of mortgage-backed securities will expire on March 31st.  Intentionally designed to drive down rates, current economic conditions have improved enough to where the need for such low rates is “no longer warranted.”

This has brought up an industry-wide push to all those who have been on the sidelines waiting for bottom to take advantage before rates inevitably go up.  However, rates are not expected to skyrocket.  Assistant Secretary of the Treasury Michael Barr, was quoted in the Washington Post as saying, “I’m not going to say there will be no effect on rates, but it should be an orderly transition.”

Expectations are that once rates begin to rise, we’ll see more market activity from hesitant buyers.  There are still a small number of buyers who believe it is possible for home prices and economic conditions to go even lower.  Therefore, with only the option to either buy or continue hestitating, rising rates could be the evidence that the market needs.

Here are some highlights from the press release issued by the FOMC:

  • Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth and tight credit.
  • Business spending on equipment and software appears to be picking up, but structure investment is still contracting and employers remain reluctant to add to payrolls.
  • Firms have brought inventory stocks into better alignment with sales.
  • With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Here’s an interesting bonus read: Higher Mortgage Rates Mean More Buyers