Low Rates for “An Extended Period”?by Tim Manni
For months now, the hype surrounding the conclusion of the Federal Open Market Committee’s (FOMC) two-day meetings has been far less about a possible change to the Federal funds rates, than it has been about the short statement that follows.
Today’s conclusion certainly continues that trend. While we weren’t expecting much of a change in the FOMC’s statement from their September release, we were in fact keeping our eyes peeled for any subtle changes to how the Fed addressed economic conditions. Their stance that the current climate is “likely to warrant exceptionally low levels of the federal funds rate for an extended period” remained unchanged, and the target for the Fed funds rate remains between 0 and 1/4 percent.
The Fed’s ongoing commitment to purchase agency (Fannie Mae and Freddie Mac) mortgage-backed securities and debt stayed the same, as did their previously announced deadline of March 31, 2010. What did change however, was that the Federal Reserve will only commit to purchase a maximum of $175 billion of agency debt, down $25 billion from their previous announcement. The FOMC states that the reduced amount is “consistent with the recent path of purchases and reflects the limited availability of agency debt.” This suggests that F&F are not issuing that much debt, or the debt they are issuing is being easily absorbed by the marketplace. It is also a small signal to the market that the Fed actually will unwind certain support programs as need be, and in a measured fashion.
The fact that the FOMC hadn’t altered their tone on rates leads us to believe that mortgage rates shouldn’t experience too many significant changes at least over the next six weeks, when the committee is scheduled to meet again.