Mortgage rates hit 16-month low as Fed says no end to QE yet

by Rachel.Norvell08 Oct 2014
Mortgage rates dropped to 16-month lows today after minutes of the Federal Reserve discussions at the Sept. 16-17 meeting showed that officials do not plan to raise interest rates anytime soon, and that the unwinding of QE purchases will not begin until after rates start to rise.

Rates hovered between 4.0% and 4.125% this afternoon following the release of the minutes.

During the meeting, the Fed voted 8-2 to keep its key short-term interest rate at a record low. Officials said that the timing of an interest rate hike will depend on how close the economy is to achieving the Fed's goals for maximum employment and inflation running at an annual rate of 2%.

Last week, the Department of Labor reported the unemployment rate September drop to 5.9%, closer to the Fed's goal of an unemployment rate between 5.2% and 5.5%. During the last two years, inflation has been well below 2%.

When the Fed does start to unwind its bond-buying program, it will do so “in a gradual and predictable manner,” principally by allowing purchased securities to expire at maturity.

The Fed has been tapering off its quantitative easing (QE) program for some time now and is expected to end this month.  Now, many fear how fast interest rates will rise once the bond-buying program ends.

The bond-buying program was a boon to the mortgage industry, shrinking interest rates to near-record lows and kicking off a boom in refinancing. When the Fed began to talk about tapering its bond buys last year, interest rates spiked by more than a percentage point, strangling the refi boom.

The Federal Reserve’s portfolio of assets has swollen from its 2007 level of $800 billion to about $4.5 trillion – and shrinking it to its pre-crisis levels could take years, according to Fed Chair Janet Yellen.

To read the minutes from the Fed’s Sept. 16-17 meeting, click here.

 

COMMENTS

  • by Glen Weinberg: Fairview Commercial Lending | 10/9/2014 10:45:34 AM

    Interesting article. Rates staying low is always a good thing for borrowers, but it makes me wonder if this will help create another bubble. For example I just evaluated an apartment transaction in Denver, the return on the investment looked great as a result of the low rate on the note, if rates move up (which they eventually will) the deal was much less attractive from an ROI perspective. Will be interesting to see how this shakes out in the industry as more capital flows in to take advantage of the rock bottom rates.

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