Fed to End Mortgage-Purchase Program

Post by Ken Grech, a top Simi Valley real estate agent. Search Simi Valley real estate listings. Wall Street Journal, By Jon Hilsenrath and Luca Di Leo:

The Federal Reserve said it will end, as planned, on of its main supports for the U.S. economy-purchases of $1.25 trillion of mortgage-backed securities-allowing a nascent economic recovery to stand with less government support.  

Fed officials ended a meeting of their policy committee Tuesday noting the economy is improving, but signaled that it will be at least several more months before they raise short-term interest rates from near-zero levels.

"Economic activity has continued to strengthen," the Fed said in a statement. "The labor market is stabilizing," it continued. "Inflation is likely to be subdued for some time."  

Slowly improving growth, low inflation and more normal credit markets have led Fed Chairman Ben Bernanke to unwind many Fed emergency-rescue efforts while putting off raising rates.  

The Fed will complete the mortgage-backed securities purchases by the end of March, winding down a program that it and many economists believe played an important role in preventing a much deeper recession. The purchases helped drive up the value of these securities and thus drove down mortgage interest rates and helped financial markets.  

The March 9, 2009, bottom in the Dow Jones Industrial Average came just a few days before word of the Fed's big mortgage program began circulating in financial markets a year ago.  

Some analysts have worried that the end to the Fed's mortgage buying could raise mortgage rates. So far that hasn't happened. Rates on 30-year mortgages have fallen to around 5.05% from 5.28% at the start of the year, according to research firm HSH Associates, even as Fed officials telegraphed the program would end soon.

Other long-term interest rates have been stable. Yields on 10-year Treasury notes have hovered between 3.6% and 3.8% this year.

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