Fed Expectations

Dated: 09/19/2016

Views: 507

Mortgage rates moved higher over the past week, and the reason was clear: Expectations for future monetary policy from the U.S. Fed and the European Central Bank (ECB) became more hawkish.Over the past week, both the ECB and the Fed appeared to be leaning toward tighter-than-expected monetary policy. The ECB indicated that additional stimulus is not needed at this time. In the U.S., recent comments from some Fed officials revealed a growing degree of support for raising the federal funds rate.In recent years, central banks around the world lowered short-term rates and engaged in massive bond-buying programs to help boost economic growth. The added demand for bonds from central banks has driven up prices and pushed down global yields, helping U.S. mortgage rates reach their current low levels. The measures taken have been extreme by historical standards. Fed officials have expressed a need to begin to return monetary policy to more normal conditions.For mortgage rates, the big question is how quickly the Fed will tighten monetary policy. The Fed has stated that once the federal funds rate has been raised to a more normal level, it will allow its holdings of Treasury bonds and mortgage-backed securities (MBS) to begin to shrink. Currently the Fed is purchasing in the neighborhood of 25% of all newly issued MBS to replace principle payments received. The further in the future that this policy change occurs, the better it is for mortgage rates.

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David Sarnowski

David is a seasoned real estate professional, specializing in residential sales, rentals and investment properties. David is a 15 year resident of the New Jersey Gold Coast, with the local knowledge n....

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