The Federal Reserve released a statement Wednesday at 2PM that it will not taper quantitative easing, the $85 billion-a-month mortgage bond purchasing program designed to keep interest rates low to encourage people to borrow and invest.
The Fed said it needed to see more improvement in the economy before it would pull back on the program. While the unemployment rate has shown improvement, the economy hasn’t produced as many jobs as expected.
The decision came as a surprise to many economists. There was talk that the taper would start slowly, at about $10 billion less a month. Even talk of the possibility of tapering the bond buying program has affected interest rates this year. In June, mortgage rates surged higher in response to a press conference where Federal Reserve Chairman Ben Bernanke said that if the economy continued to improve the Fed could slow quantitative easing later in the year.
There has been much speculation as to how this would affect mortgage rates. Low interest rates have been a big part of the housing recovery, making home ownership affordable and encouraging more people to buy a home. After the announcement, mortgage rates dropped lower to 4.5% for a 30 year fixed, good news for people looking to take advantage of low rates to purchase a home.
There was other good news for housing this week. Housing starts for single-family homes for August were up 7% over July. Building permits were up at a seasonally adjusted annual rate of 918,000, 11% above the August 2012 estimate of 827,000.
Now that the Fed says it will not taper quantitative easing, we believe interest rates will likely remain in the 4% range, and will likely go slightly lower before the year ends, since historically they reach their lowest levels of the year during the months of November or December.
In his press conference yesterday Ben Bernanke said while they haven’t decided to taper quantitative easing, it was not a preset course, and their decision to taper in the future will remain contingent on the Federal Open Market Committee’s economic outlook.