A Few Observations From Latest FOMC Releaseby Tim Manni
As expected, the Federal Open Market Committee (FOMC) concluded their two-day meeting yesterday by leaving the target range for the federal funds rate at zero to 0.25%.
Despite the expectations and strategies largely expected from the committee, there were a few aspects of the Fed’s initial press release following the meeting that stood out to me.
(1). The Fed plans to not only continue purchasing debt and mortgage-backed securities (MBS) from Fannie and Freddie, “it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant.”
The immediate impact of the Fed’s decision to buy the GSE debt and MBS, even before a substantial portion of the amount promised was purchased, 30-year conforming rates plunged to record lows — re-establishing serious purchase and refinance activity.
(2). “The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.”
With significant stimulus spending just around the corner, “the market will soon be flooded with new Treasuries of all stripes,” said HSH Vice President Keith Gumbinger.
“There may be a need coming soon for someone to mop up excess supply, otherwise rates might rise everywhere,” said Gumbinger.
(3). “The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility [TALF] to facilitate the extension of credit to households and small businesses.”
The Fed announced the creation of the TALF back on November 25, just prior to announcing their plan to purchase $600 billion in F&F debt and MBS. According to a November 25, 2008 press release, the TALF will be “a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).”