Will the Fed taper this month?

by Ryan Smith06 Dec 2013
With better-than-expected job growth and new home sales, could the Federal Reserve be about to wind back its $85bn-per-month bond-buying program?

According to the manager of the world’s biggest bond fund, the recent strong economic data means that there’s an even chance the Fed will begin to taper the program this month. That would be bad news for the mortgage industry; the quantitative easing program led to historically low interest rates and spurred the refinance boom.

But Bill Gross, manager of Pacific Investment Co., told Bloomberg that the Fed is looking for a way to wind down QE, and strong job growth and home sales might give the agency the impetus it needs.

“It’s at least 50-50 now,” Gross said. “There was some logic for a January starting point, but it’s clear the Fed wants out.”

Employers added 203,000 jobs in November, beating economists’ projections. That’s on top of a revised 200,000 new jobs in October – the strongest back-to-back gain since February and March, according to Bloomberg. In addition, the jobless rate dropped to a 5-year low of 7%.

With those indicators signaling a strengthening economy, the Fed may take the opportunity to begin winding down QE. Still, growth is only at about 2%, which may make the agency proceed with caution, Gross told Bloomberg.

There’s little doubt that mortgage interest rates will rise if the Fed tapers. Just the expectation that the taper would begin in September caused rates to jump more than a full percentage point over the summer, strangling the refi boom.
 

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