Politics & MoneyInvestments

Fed commits to $40 billion MBS-buying program

The Federal Open Market Committee said the central bank plans to continue purchasing additional agency mortgage-backed securities to foster a continuing housing recovery while trying to keep unemployment rates down.

The FOMC made that conclusion after members met this week and decided that the Fed would continue purchasing agency MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion a month.

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook,” the FOMC said in a statement. 

The Fed’s decision to keep pressing the gas pedal down on its bond-buying program was in line with the majority of market experts.

However, some economists fear that the continuation of the open-ended third round quantitative easing program may lead to a bad economic ending for various income markets. 

“The catalyst for a sooner-than-anticipated end to quantitative easing is strongly improved economic conditions concurrent with any rise in inflation that prompts an ‘inflation scare.’ It is not even necessary that actual inflation tick up much, only that inflation expectations increase and markets start to fear the end of quantitative easing,” said Greg Brown of Smith Breeden Associates.

A sector that could experience a significant inflation scare is agency MBS, which would be hurt by bother higher volatility and lack of Fed buying.

“Higher nominal rates will extend the duration of pass-through securities, but a strong economy will allow many currently constrained households to qualify for refinancing via higher incomes and home prices,” Brown explained.


Most Popular Articles

Airbnb properties wouldn’t make a dent in housing market

While the real estate market has lots of challenges during the COVID-19 pandemic, a tsunami of houses being sold by Airbnb hosts who can’t pay their mortgages isn’t one of them. HW+ Premium Content

Jun 02, 2020 By

Latest Articles

The mortgage industry’s united effort to combat COVID-19

From the frontlines to front porches, the housing industry has quickly found ways to support those impacted by the COVID-19 pandemic.

Jun 05, 2020 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please