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September 23rd, 2009

Fed Announces MBS Purchase Extension



Minutes ago, the Federal Open Market Committee (FOMC) released a statement following their two-day meeting, which solidified most of, if not all, analysts’ expectations.

MBS/Debt Purchases Extended

Perhaps the biggest development was that the Fed announced that they will ease their purchases of mortgage-backed securities and agency debt by the end of the first quarter of 2010, not by year’s end as previously stated. Conforming rates should remain low for a while yet, but the Fed’s reduced demand might serve to nudge rates up. The decision to push their exit strategy back signals that private markets may not quite be ready to operate on their own by December.

Fed Funds Rate

As expected, the FOMC voted to keep the target for the Federal funds rate between 0 and .25%, since “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

There was no change in the Fed’s economic outlook — “activity is likely to remain weak for a time,” however, the committee continues to see several signs of stabilization or improvement in financial markets:

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn.  Conditions in financial markets have improved further, and activity in the housing sector has increased.  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment and staffing, though at a slower pace…

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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