Fed will finally stop printing after $1.25 Trillion - Mortgage rates may jump
Posted by Tony Kawaguchi, RA on Wednesday, January 27th, 2010 at 12:16pm.There is an upcoming economic event that I am now tracking very closely. In a couple of months the government will stop propping up the mortgage-backed securities market. The exact aftermath of this move will depend on how the numbers on unemployment and foreclosures play out over the coming months.
An article in the Washington Post explains that "Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments."
"A few federal officials and many industry advocates disagree, saying the government is exiting too soon. They offer dire warnings of higher rates and a slowdown in home sales."
The Treasury spent about $220 billion, and the Fed pledged $1.25 trillion, the single largest foray the central bank has made into the markets since the onset of the crisis. In essence, the Fed has been printing money and funneling it to people looking to buy a house or refinance an existing mortgage.
We'll see how this effects mortgages and the stock market at large, but most certainly treasury prices will fall, and rates will go up at least a little, if not a lot.
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