Concerned about the slowing pace of recovery, the Federal Reserve on August 10 announced renewed efforts to keep interest rates low.
As reported by The New York Times, the Fed will reinvest proceeds from its mortgage-bond portfolio in long-term government securities.
According to The Times, “From January 2009 to March 2010, the Fed bought $1.25 trillion in mortgage-backed securities and about $175 billion in debt owed by government agencies, primarily the housing finance entities Fannie Mae and Freddie Mac. The Fed had planned to allow the size of that portfolio to shrink gradually as the securities matured or the debts were prepaid.”
“Instead, the Fed will now reinvest those principal payments in longer-term Treasury securities.” The goal is to “help keep money readily available in the financial markets.”
This is viewed as a modest first step by the Fed to keep downward pressure on long-term interest rates, and so stimulate borrowing.
For home buyers, it means mortgage rates should remain historically low for some time.
- Fed Moves to Support Low Mortgage Rates (money.usnews.com)
- US mortgage rates hit another record low-Freddie Mac (reuters.com)
- Fed keeps interest rates at historic lows, takes other small steps (usatoday.com)
- Fed takes modest step to bolster recovery (msnbc.msn.com)
- Fed to Buy U.S. Debt, Saying Recovery Has Slowed (dealbook.blogs.nytimes.com)
- Federal Reserve’s Low Rate Policy Is A ‘Dangerous Gamble,’ Says Top Central Bank Official (huffingtonpost.com)