On Wednesday the Fed announced that it would taper its bond buying by $10bn per month, split evenly between its purchase of Treasury bonds and mortgage-backed securities. Bernanke said in a press conference following the announcement that the Fed would most likely continue to wind back its bond purchases, $10bn at a time, over the next several meetings of its rule-making committee. However, he said, that decision was more of a flexible guideline than a hard-and-fast policy.
“The process will be deliberate and data-dependent,” he said. “…If the economy slows for some reason or we’re disappointed in the outcomes, we could skip a meeting or two. On the other hand, if things really pick up we could go faster. That said, my expectation is moderate steps going forward.”
Bernanke also told reporters that they could expect the taper to continue under his presumed successor, Janet Yellen.
“I have always consulted closely with Janet … and I consulted closely with her on these decisions as well, and she fully supports what we did today,” Bernanke said.
One thing is pretty certain: mortgage rates will rise as the Fed winds back its bond purchases. As for how fast and how far rates rise, that depends on how steady the tapering is over the next year, according to Bryan McNee, vice president and senior bond analyst for MBSAuthority.com.
“It depends on … what their timeline is,” McNee said. “The more accelerated the timeline, the greater the sell-off will be and the higher rates will be.”
So the taper has officially happened. But what does that mean for mortgage rates? Well, it all depends on how fast the Federal Reserve winds down the rest of its bond-buying program – and Fed Chairman Ben Bernanke said that was dependent on several economic factors.