What is the Fed’s next move? 9/10/2014

In the Federal Reserve’s last meeting in July, there were no surprises. ?They decided to keep its short term borrowing rate the same and to reduce its monthly bond purchases by $10 billion. ?Both of these decisions were expected. ?The central bank has been gradually reducing, or tapering, its monthly bond purchases since January. It will now buy just $25 billion a month. That’s down from a peak of $85 billion when the Fed started its third round of quantitative easing, a policy dubbed QE3 on Wall Street. At this rate, the Fed will stop purchasing bonds later this year.

Since the Federal Reserve has reduced its bond purchases so slowly, it has not had a dramatic impact on mortgage rates. ?This is exactly the result they wanted. ?And most economists predict they will not touch the short term borrowing rate, which has been near zero since 2008, until at least second quarter 2015. ?But Fed Chair Janet Yellen continues to echo that the decision to raise this rate will completely depend upon economic data.

So, I think we can expect the same ol ho hum from the Federal Reserve. ?They do not want to do anything dramatic that would cause a spike in home loan interest rates. ?Do you remember last summer when Ben Bernanke made a comment about completely stopping the bond purchase program? ?Interest rates shot up a full one percent in a week. ?They do not want to make that mistake again.