The Federal Reserve will start to cut: what does this mean for mortgage interest rates?
Federal Reserve Chairman Jerome Powell announced during a press conference today that the Fed will begin to gradually reduce mortgage-backed securities, including bonds. The Fed plans to slow the pace of asset purchases by $ 15 billion per month ($ 5 billion in mortgage-backed securities), with the option of increasing or decreasing this amount depending on the economic recovery. . However, President Powell declined to say what factors would justify changing the pace of the reduction.
“With the number of COVID cases declining further and the progress of vaccinations, economic growth is expected to accelerate this quarter, resulting in strong growth for the full year,” said President Powell.
Experts expect this movement to increase, since the Fed was buying these securities at low rates, keeping mortgage rates at historic lows. Given today’s news, it is quite possible that rates will continue to rise, increasing the .
As the Fed begins to reduce the pace of its $ 120 billion monthly purchases of Treasury bonds and mortgage-backed securities, it will not raise interest rates yet. Pandemic supply and demand imbalances, supply chain disruptions and lingering effects of COVID-19 are the main drivers of rising inflation today, President Powell says , keeping it well above the Fed’s 2% inflation target.
However, while the Fed will keep interest rates near 0% in light of this, President Powell has said it will not yet use its tools to preserve price stability.
“We are committed to achieving our long-term target of 2% inflation and to have long-term inflation expectations firmly anchored to this target,” said President Powell. “If we were to see any signs that the inflation path, or longer-term inflation expectations, were moving significantly and persistently beyond levels consistent with our goal, we would use our tools to preserve price stability. “
Reaffirming what President Powell said at last month’s meeting, the Fed’s downsizing effort is expected to end around mid-2022 if economic conditions go as expected.