September 20th, 2013 1:46 PM by Jonathan White
No Fed Taper
The most highly anticipated Fed meeting in years captured all the attention this week. The Fed statement caught nearly every investor by surprise, since the Fed did not begin to taper its bond purchase program. Mortgage rates swiftly dropped following the news and ended the week lower.
While the vast majority of investors expected a small cut in the quantity of monthly Fed bond purchases, the Fed made no change. According to the statement, Fed officials will wait for signs of stronger economic growth before scaling back its bond purchases. Fed Chief Bernanke stated that the economic data "does not yet provide sufficient confirmation" to justify reducing bond purchases. For mortgage rates, the continued demand from the Fed for mortgage-backed securities (MBS) is positive. Investors lost some faith in their ability to anticipate what the Fed will do, though, which likely will lead to high levels of volatility in the future.
The housing sector has been a major source of strength for the economy this year. By waiting to taper, Fed officials will have more time to see what impact the rise in mortgage rates in recent months will have on the housing market. The housing data released this week showed a modest pace of improvement. August Existing Home Sales increased 2% to the highest level since February 2007, exceeding even the peak seen in November 2009 when the homebuyer tax credit was set to expire. Existing Sales were 13% higher than one year ago. Total inventory of existing homes available for sale rose slightly to a 4.9-month supply.