How did mortgage rates react to the Federal Reserve’s announcement last week to pump $600 billion into the U.S. bond market? Pretty much as expected.
Rates were down across the board, with a few exceptions – for example, three-year adjustable rate mortgages rose from 3.647% to 3.753%, as measured by the BankingMyWay Weekly Mortgage Rate tracker. That jump looks like an aberration, as just about every other major mortgage rate category fell like a stone (more on that in a moment).
The Fed is heavily invested in keeping interest rates down, thus the $600 billion to flood the bond market. It’s a move that should raise bond prices, reduce mortgage rates, and hopefully encourage businesses and consumers to borrow some dough and start spending it.
One encouraging trend from last week is that the Department of Labor reported that 151,000 jobs were added to the employment rolls for the month of October. Perhaps more encouraging is that private sector jobs rose substantially while government jobs were reduced, raising hopes that a more classic economic rebound is on the horizon.
But that’s pretty much it for the good news. In a statement released after its Nov. 3 announcement about the $600 cash infusion into the bond market, the Federal Reserve admitted that economic growth “continues to be slow,” while income growth remains “modest.”
“To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities,” the Fed announced. “The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.”