The agency’s Federal Open Market Committee is scheduled to meet Dec. 17-18, but is expected by many economists to leave its $85bn-per-month bond-buying program in place.
But St. Louis Fed President James Bullard said a recent spate of better-than-expected economic data has increased the likelihood that the Fed would lower its monthly bond purchases slightly, according to a Reuters report.
“A small taper might recognize labor market improvement while still providing the (FOMC) the opportunity to carefully monitor inflation during the first half of 2014,” Bullard said Monday in a speech in St. Louis. “Should inflation not return toward target, the committee could pause tapering at subsequent meetings.”
But any taper at all – even a small one – will cause mortgage rates to rise.
The Fed’s bond-buying program has been a boon to the mortgage industry, bringing rates to historic lows and helping to spur a boom in refinancing. Indeed, worry that the Fed would taper the program in September led to rates spiking more than a full percentage point over the summer.
But recent job and housing data have showed an upswing in the economy, perhaps giving the Fed the ammunition it needs to taper the program. Unemployment dropped to 7% last month, with the economy adding more than 200,000 jobs.
The Federal Reserve could decide on a “small taper” at its policymakers’ meeting next week, according to a Fed official.