Why is the Fed FOMC Meeting This Week Such a Big Deal?
This week all eyes are on the Federal Open Market Committee meeting, as the market waits for the Federal Reserve’s tapering decision. Both the FOMC policy statement and its up-to-date economic and market projections will be released on Wednesday at 2 p.m. EDT, followed by Fed Chairman Ben S. Bernanke’s press conference at 2:30 p.m.
Why is this all such a big deal?
In the real estate world, we are watching to see if the Fed begins tapering – the term used for cutting back on the purchases of Treasuries and MBS (Mortgage Backed Securities) that constitute the current round of quantitative easing, known as QE3. To oversimplify it, if the Fed begins tapering, it will likely drive mortgage rates up further.
So why is the Fed looking to taper these purchases now, and how likely is it that they will do so on Wednesday?
It all has to do with the health of the economy - the Fed needs to stop QE3 sometime, and it appears that the economy is showing enough signs of strength that now would be the time to begin. Specifically, how swiftly the Fed cuts its QE purchases will depend a lot on the evolution of the labor market. The Fed announced its most recent round of QE in September of last year, and it has been buying $85 billion a month since January ($45 billion in Treasuries, $40 billion in MBS). Although the 169,000 U.S. jobs gained in August missed the forecast, the economy has added more than 180,000 jobs a month on average since the latest program was launched. That compares with an average of just 130,000 in the six months before the program was launched. During the same time, the unemployment rate has dropped to 7.3 percent from 8.1 percent ahead of last September’s FOMC meeting.
So what to do
now?
Be prepared for lots of interest rate volatility this week as the markets work to stay ahead of the Fed moves and speculation abounds. Keep in close communication with your us at Midwest Mortgage Capital and have us keep you abreast of what happens throughout the week. You can either contact us at 314-744-7806, or click on the link below:
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