The Federal Reserve agrees to begin tapering Bond Purchases by 10 billion per month starting in January 2014
How has this affected mortgage rates? What can we expect to see in the New Year?
On December 18th 2013 the Federal Reserve (the “Fed”) announced its plan to start scaling back on its QE Bond purchases by $10 billion per month. In a surprise turn of events, the markets have reacted positively. Rates had been expected to rise on this news but have instead held ground at current levels (mid 4% range on Primary residence/ low 5% range on investment property purchase).
The Fed plans to scale back the $85 Billion per month in Bond purchases by $10 billion starting in January 2014 and will continue to taper every quarter based on economic data. (If the economy appears to continue on its current pace, the Fed will continue to taper, if the economic data does not meet market growth expectations, they will not taper and are willing to increase the bond purchasing program if needed).
The most important statement made by the Fed was its plan to keep the Fed Fund Rate (the interest rate at which depository institutions actively trade balances at the Federal Reserve - currently this rate is at .0-.025% and a rise in this rate would cause interest rates to rise immediately across the board) at the current rate for an extended period. The kicker is that this rate may not go up in our lifetime!
The equity markets reacted positively to this news (Dow Jones, S&P 500 and Nasdaq all closed at historic highs on 12-18) and the bond market has since stabilized. Expect mortgage rates to stay neutral for the time being with slight upward adjustments in January.
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