In a move that took many financial experts by surprise, the Federal Reserve today decided to maintain its pace of Treasury and mortgage bond purchases for at least another month and a half.
Early indications are that mortgage rates dropped sharply in response, with the average on 30-year fixed-rate mortgages down by a full one-tenth of a percent Wednesday afternoon, according to the latest figures from the Zillow Mortgage Marketplace.
The statement issued at the end of the latest meeting of the Fed's Open Market Committee today indicated that committee members are concerned that tightening financial conditions seen in recent months could slow the economic recovery. While they believe the economy is on better footing than last fall and see continued signs of improvement, they decided to maintain their current level of economic stimulus, through the bond purchases, until it becomes more apparent that the recovery will be sustained.
Held down rates since 2009
The bond purchase program, through which the Fed currently buys $85 billion in mortgage and Treasury bonds each month, is one of the primary reasons that mortgage rates have been so low in recent years. Rates began falling when the Fed first began making purchases in the spring of 2009, dropped further as the Fed upped the pace of purchases, and only began to rebound last May as speculation grew the program would soon be scaled back.
Fixed mortgage rates have increased by more than a full percent since last spring but still remain well below their historic norms and their levels of early 2009 before the program began.
As of noon Wednesday, the Zillow Mortgage Marketplace had the national average on 30-year fixed mortgages at 4.41 percent after trending gradually downward the past two weeks. By 4 p.m., it had dropped to 4.25 percent, its lowest level since August 12. The rate hit its recent peak on Sept. 7 when Zillow reported the national 30-year average at 4.57 percent.
The Fed's Open Market Committee meets eight times a year and will meet again in six weeks, at which time will again consider whether to ease off or continue the level of economic stimulus through bond purchases.