Comments by Fed chairman Ben Bernanke after Wednesday’s FOMC meeting caused havoc in financial markets as investors anticipated the potential effects of any rollback of the Fed’s policy of quantitative easing (QE). Chairman Bernanke said that the Fed may begin reducing its $85 billion monthly purchase of Treasury securities and MBS toward the end of this year.
The chairman made it clear that any decision concerning QE would be based on careful review of current and developing economic conditions. QE is intended to keep long-term interest rates low; any reduction of the QE securities purchases could cause mortgage rates to rise.
Economic News Bodes Well For Housing
The week’s other economic news included more good news for housing. The NAHB/WF Housing Market Index for June came in ahead of expectations at 52, which surpassed the expected reading of 45 and May’s reading of 44. Any reading over 50 indicates that more builders surveyed believe that housing market conditions are positive.
Tuesday was busy for economic news. The Consumer Price Index for May rose from April’s reading of –0.40 percent to +0.10 percent in May, which was below expectations of +0.20 percent.
The Department of Commerce released its Housing Starts Report for May; the reading for May missed expectations of 953,000 housing starts and came in at 914,000 which exceeded April’s 856,000 housing starts. Increasing the number of available homes could help steady recently increasing home prices, but existing homes remain in short supply in many areas.
Fed Expects Moderate Improvement Continuing For Economy
Wednesday’s news involved the Fed’s FOMC meeting and press conference. The Fed stated after the meeting that it expects moderate improvement in economic condition and noted that housing, which was a primary cause of the economic downturn, is now leading the economy’s recovery.
Freddie Mac reported that the average rate for a 30-year fixed rate mortgage fell from 3.98 percent with 0.7 percent discount points to 3.93 percent with borrowers paying 0.8 percent in discount points. The average rate for a 15-year fixed rate mortgage fell from 3.10 perc