Fed Keeps Stimulus Strong as Economic Recovery Continues

The Federal Reserve Board will maintain its bond-buying activities, driving economic stimulus, the board announced Wednesday in a statement.

“The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Federal Open Market Committee said following its quarterly meeting in Washington, D.C.

The Fed will maintain bond buying at a rate of $85 billion monthly, an activity which has helped keep interest rates at historic lows and has helped stimulate the economy and housing recovery. It also bodes well short-term for the investor market for mortgage loans.

The announcement came as a surprise to many analysts who projected the FOMC to begin tapering its bond purchases following a recent announcement indicating the Fed would begin to pare down on its stimulus efforts if the economy demonstrated through indicators including job creation, that it was recovering at a steady pace.

New job creation fell short of expectations last month, with 169,000 new jobs created.

“Asset purchases are not on a preset course, and the committee’s decisions about their pace will remain contingent on the committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases,” the committee’s statement said.

Mortgage rates, which experienced historic lows in recent months, have risen slightly from a 3.3% low to the mid-4% range this month, according to the average 30-year fixed rate average tracked by Freddie Mac. Mortgage investors have been sensitive to the Fed’s activities and the market impact, with the boding well short-term.

“The move today is supportive near term for spreads in mortgages and we’re seeing good two-way flow post announcement,” said Darren Stumberger, managing director of mortgage trading for Stifel, which operates in the HMBS trading space.

Markets responded favorably to the announcement, with the Dow Jones Industrial Average soaring to its highest-ever index reading.

Written by Elizabeth Ecker

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