What the Fed Said
October Meeting Contains Few Surprises
The Federal Reserve met on October 23-24, 2012 for its second-to-last Federal Open Market Committee (FOMC) meeting of the year. In a statement released following that meeting, the Fed confirmed it will continue its latest round of Bond buying–a policy known as Quantitative Easing or QE3–until our economy can stand on its own two feet. This means the Fed will purchase $85 billion in Mortgage Bonds each month through the end of the year, and at least $40 billion per month there after until the labor markets show improvement.
The Fed noted that economic activity expanded at a moderate pace since their last FOMC meeting in September. However, employment growth has been slow and unemployment remains elevated. In addition, global financial markets "continue to pose significant downside risks to the economic outlook"–meaning they are a threat to U.S. recovery–a statement unchanged from the Fed's last meeting.
The Fed acknowledged that inflation has picked up due to higher energy prices, but qualified that it was only a short-term uptick. While one of the goals of QE3 is to create inflation, it is important to remember that hints of inflation spook Bond investors, causing both Bonds and home loan rates (which are tied to Mortgage Bonds) to worsen because inflation reduces the value of fixed investments like Bonds. So, if you're in the market for any type of home loan, you'll want to keep a close eye on how this story unfolds over the next few months.
While it's difficult to predict what will happen with the economy overall, what we do know is that home loan rates are currently near all-time lows.
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