All eyes and ears were focused on the statement released at the end of October by the Open Market Committee of the Federal Reserve. As widely expected, the Fed announced that its Treasury and mortgage-backed security (MBS) purchases will conclude at the end of this month.
In an effort to stimulate the economy over the last several years, bond purchases by the Fed, described as quantitative easing, helped push mortgage rates down to the lowest levels in decades. The Fed became the eventual investor in the majority of mortgages originated during the bond purchase program, and the Fed’s balance sheet expanded to roughly $4.4 trillion from less than $1.0 trillion in 2007.
Why did rates not jump up on this big news?
The true market reaction to the end of quantitative easing took place way back in May of last year when the Fed first indicated that it was going to gradually wind down the program. That caused mortgage rates to increase from historic lows. With the Fed out of the picture, any signals regarding improving economic growth and upward inflationary pressure will impact rates in a more profound manner going forward.
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