The Federal Open Market Committee meeting minutes reveal the Federal Reserve is taking its taper of asset purchases a bit further, reducing monthly acquisitions of Treasurys and mortgage-backed securities by $10 billion total.
Starting in February, it will scale back agency MBS purchases by another $5 billion, acquiring the assets at a pace of $30 billion per month rather than $35 billion.
In addition, the Fed will add to it its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion.
"The committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate," the minutes stated.
While the pace of reduction is not on a preset course, the committee said if incoming data broadly supports its expectations of ongoing labor market improvements, it will likely reduce the pace of asset purchases in future meetings.
Furthermore, the minutes reaffirm the Fed's expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate as long as the unemployment rate remains above 6.5%.
Despite taper talk, Fannie, Freddie and Ginnie Mae bonds are on a roll, but no one is calling it a rally just yet.