This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fed Chose Mortgage Bonds To Bolster Housing Gains

MARTIN CRUTSINGER

WASHINGTON (AP) â¿¿ The Federal Reserve structured its latest stimulus program around the purchase of mortgage bonds after members agreed that helping a nascent housing recovery was a good way to lift the broader economy.

Minutes of the Fed's Sept. 12-13 meeting released Thursday also show that most members now agree that tying a future increase in short-term interest rates to economic measures, such as a specific unemployment rate, could be effective. But members agreed to hold off on the change to work out the details.

After the meeting the Fed said it would keep buying mortgage bonds until the job market showed substantial improvement. The Fed also extended its plan to keep its benchmark short-term interest rate near zero until mid-2015 and left open the possibility of taking other steps.

The Fed has already purchased more than $2 trillion in bonds since the 2008 financial crisis. The latest program seeks to spend $40 billion a month to buy mortgage bonds without an end date set.

Many participants agreed at the meeting that more bond purchases would provide support to the economy by putting downward pressure on longer-term interest rates. That encourages more borrowing and spending, which drives growth.

According to the minutes, Fed members compared the effectiveness of buying Treasury bonds to that of mortgage-backed securities.

"Some participants suggested that, all else being equal, (mortgage bond) purchases could be preferable because they would more directly support the housing sector, which remains weak but has shown some signs of improvement of late," according to the minutes.

A few members expressed skepticism that additional bond purchases would help. And they raised concerns that more bond buying could increase the risk of higher inflation at a later time.

Mortgage rates have been below 4 percent all year. While home sales are rising, they remain well below healthy levels.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs