The Federal Reserve is slowing the pace of purchases in its program to buy Treasuries and mortgage-backed securities after concluding that its bond-market rescue worked, Fed Chairman Jerome Powell said on a conference call with reporters at the end of a two-day meeting on Wednesday.
“Our purchases have helped market conditions improve substantially in recent weeks,” Powell said, referring to the bond-buying program that reversed a mid-March spike in mortgage rates. “In light of this improvement, we have slowed our pace of purchases.”
The Fed will buy bonds “as needed” to keep credit markets liquid, Powell said to reporters, without providing specifics.
“Preserving the flow of credit is essential for mitigating the damage to the economy and setting the stage for the recovery,” Powell said during the press conference.
Before Powell’s meeting with reporters, the central bank’s Federal Open Market Committee issued a statement pledging to keep its benchmark rate near zero and to buy bonds “in amounts needed to support smooth market functioning.”
The Fed purchased $458.1 billion of MBS between March 16 and April 13, data from the central bank shows.
Powell announced the program on March 15, initially planning to buy just $200 billion of MBS. After COVID-19 deaths surged and states began shutting down their economies, bond investors began stepping back, causing mortgage rates to spike during the week ended March 19, according to Freddie Mac data.
The following Monday, Powell announced the Fed would lend support to the mortgage-bond market with unlimited buying.
That’s when rates began moving lower, and for the last four weeks the U.S. average for 30-year fixed mortgages has stayed within four basis points of the all-time low of 3.29% set in the first week of March, as measured by Freddie Mac.
The unanimous FOMC statement issued before Powell’s press conference pledged to keep monetary policy accommodative for as long as it took to get the economy through the COVID-19 crisis.
The coronavirus pandemic “poses considerable risks to the economic outlook over the medium term,” the statement said. The central bank “will use its tools and act as appropriate to support the economy,” it said.