Fed’s statement suggests higher mortgage rates

As expected the Fed announced today that they would leave short-term interest rates near historic lows.  No surprises there.  However, there was a couple interesting excerpts from their post-policy meeting statement which suggest mortgage rates are poised to move higher (also not a surprise if you’ve followed my blog posts time and time again).

Here is a link to the full statement & here are the highlights:

*The Fed’s view is a little rosier: Since April the Fed has continually stated that economic activity would be “weak for a time.”  Today, they changed the wording to state economic activity would be “moderate for a time.”  The change in wording is sign that they believe the economy is improving.  Good news for the economy is bad news for mortgage rates.

*The Fed will stop buying mortgage-backed bonds (MBS’s): As I wrote about in my November newsletter as soon as the Fed announced that they would begin buying MBS’s in November of 2008 rates nose dived.  The Fed has been very transparent in communicating that they would discontinue this program at the end of the first quarter and they reiterated that today by stating “on March 31, the Fed will complete its purchases of $1.25 trillion of mortgage-backed securities.”  They go on to say “Fed officials believe mortgage rates could rise when it stops its purchases, but most believe it will be less than half a percentage point and possibly less.” and possibly more.  They did leave the door open to change their minds regarding this policy.

All in all the statement is reassuring from the standpoint that the Fed seems to be confident the economy is improving which means more jobs!!!!!!  The drawback is that we know that when the economy improves and the government unwinds their stimulus efforts mortgage rates will move higher.