Susan Walsh, ASSOCIATED PRESS
Another meeting of the Federal Reserve Board has come and gone. One of the most followed actions of the Fed was the decision not to begin the generally anticipated tapering of the current monthly purchases of U.S. Treasury securities and residential mortgage-backed securities.
With monthly Treasury note and mortgage-backed securities purchases by the Federal Reserve totaling $85 billion, the board determined the U.S. economy was not sufficiently strong to warrant a decrease in these purchases. Ongoing purchases are intended to maintain or potentially lower longer-term U.S. interest rates.
With interest rates in the five- to 30-year maturities increasing slightly over the past several months, origination of new residential mortgages has slowed somewhat, due in part to the increase in borrowing costs. The current rate on the 10-year maturity U.S. Treasury note is approximately 2.75 percent. Many traditional residential mortgage rates track the movement of the rate on the 10-year U.S. Treasury note. On a historic basis, current residential mortgage rates still remain very attractive.
With a potentially diminishing supply of new residential mortgages being originated, the ongoing purchases by the Fed should have a proportionally more significant effect on mortgage borrowing rates. The mix of the U.S. Treasury notes and residential mortgage-backed securities purchased by the Fed is not explicitly communicated to the public.
Members of the Federal Reserve Board are appointed by the U.S. president and are confirmed by the Senate. Once they are appointed, they are expected to make monetary policy decisions independent of political pressures and motivations. Members serve a 14-year term. Some members have served a remaining portion of another member’s term before being appointed to serve their own full terms.
The composition of the Fed Board and the charter of the board allow it to take a longer-term perspective on the health and direction of the U.S. economy. Fed announcements continue to indicate interest rate policy will be driven by the data describing the status of the economy.
Given the positive, although somewhat tepid, growth of the U.S. economy, near-term Fed actions will most likely be measured and cautious. Policy changes will occur, although the timing and severity will continue to be topics of speculation for many market participants.
Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.
- Twitter tries to block images of James Foley...
- Facebook makes the most obvious move ever...
- Raising a kid will cost you $245,000 —...
- 7 benefits of taking vacation time
- Utah exceeds Gov. Herbert's jobs goal
- Dave Ramsey says: Don't make comparisons when...
- Proposed collector natural gas lines in Moab...
- 12 kinds of late-night office emails
- Emerging solar plants scorch birds in... 14
- Raising a kid will cost you $245,000... 10
- Proposed collector natural gas lines in... 7
- Utah exceeds Gov. Herbert's jobs goal 6
- Twitter tries to block images of James... 4
- Balancing act: Readers dispute... 4
- Dave Ramsey says: Don't make... 4
- Facebook makes the most obvious move... 2