The Federal Reserve is making plans to end its QE3 program. However, the central banker is balancing the risks of such a move against the risks of low economic inflation and persistently weak employment.
As revealed by the minutes from the December 2013 Federal Open Market Committee meeting, Fed members are in mild disagreement about the best way forward.
For today's home buyers and mortgage rate shoppers, lack of Fed consensus could result in mortgage rate volatility which would make it hard to pin down a great, low rate.
The Federal Reserve recently released the minutes from its December 2013 Federal Open Market Committee meeting.
More commonly called the "Fed Minutes", the report is a granular summary of the most recent FOMC meeting. It includes details on the conversations and debate which shaped the meeting's outcome, similar to how the minutes of a shareholder meeting or condo association would read.
The Fed Minutes is the more-thorough companion to the Federal Reserve's other meeting summary -- its post-meeting press release.
As a length and depth comparison, consider that the Fed's post-meeting press release was comprised of fewer than 900 words, in total. By contrast, the final Fed Minutes ran longer than 8,000 words.
The Fed's December minutes reveal a group with divided opinions.
Some Fed members believe the group in doing too much to help the economy; others believe the Fed is doing too little. Ultimately, the central banker voted and reached consensus to "taper" its support for the economy, and to make future policy changes as economic conditions warrant.
For mortgage rate shoppers, the minutes suggest a rhetoric battle which may keep rates in flux through the early part of 2014, at least -- especially with the unexpected weakness of December's Non-Farm Payrolls (NFP) report.
Mortgage rates are better by 0.25 percentage points since last week's NFP release.
The Fed Minutes covered much ground with the over-riding, paraphrased message of "reducing stimulus without over-reducing stimulus".
The Fed is wary that inflation rates are low, and that the removal of stimulus will leave the economy with fewer inflationary elements within in. Too little inflation in the economy can be as insidious as too much inflation, and the Fed wants to avoid that situation.
So, the Fed voted to reduce the size of its current and third round of quantitative easing (QE3) by a modest $10 billion per month.
The QE3 program is now sized at $75 billion monthly and prescribes for the Fed to purchase Treasury and mortgage-backed securities (MBS) in the open market. The purchases result in artificial demand for such bonds, which causes their respective prices to rise.
When mortgage bond prices rise, mortgage rates fall; and this is how QE3 has helped to keep mortgage rates low.
Absent QE3, mortgage rates would not have likely reached the low-3s, as they did in 2013.
The Fed's comments on housing were of particular interest.
Housing market activity appeared to slow, said the Fed, likely the result of higher mortgage rates. The Fed also acknowledged a supply-side program; that the available U.S. home supply is too low to meet the needs of today's growing pool of home buyers.
The Fed also said that rising mortgage rates could exert more pressure on the housing market's recovery than originally expected. The Fed will ultimately test this theory as the size of the QE3 program shrinks.
Federal Reserve members expect home values to rise in 2014, which will reduce the number of underwater borrowers nationwide. This, too, should aid the housing market because, when home values climb, it can be easier for homeowners to sell.
The Federal Reserve has started its QE3 taper. Eventually, its support for low mortgage rates will move to nil. Today, though, QE3 remains in effect and U.S. mortgage rates remain low.
For rate shoppers looking ahead to what's left of the week, what's left of the month of January, or what's left of the year 2014, consider that today's mortgage rates may be the best that it gets.
Get a personalized mortgage rate quote for your home, and get the rate quote now. Quotes are fast, free, and come with no obligation whatsoever to proceed.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
The Mortgage Reports is an excellent resource. I depend on the Mortgage Reports for the most up-to-date information regarding shifts in government policy and mortgage rate information in general.
Felicia M. Law Enforcement
The Mortgage Reports has been a valuable asset to me. I love that each topic is fully explained in terms that can be easily understood. I've learned more from this web site than from any first-time buyer education class.
The Mortgage Reports is invaluable. It's our primary source for information on housing finance.
2015 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.