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It happened. At its most recent meeting, the Federal Open Market Committee (FOMC) of the Federal Reserve followed through on something that had been alluded to for a couple of months:

It laid out a plan for the slow pullback of asset purchases by the Committee, including mortgage-backed securities. While this could push mortgage rates up because the Fed is a big buyer, it’s a gradual pullback intended to avoid anything like the taper tantrum of 2013.

As a practical matter for consumers, the incremental nature of this move probably means you can expect mortgage rates to rise fairly slowly with future moves included in rates over time. That said, if you’re in the market to buy or refi, you should apply now to take advantage of today’s market.

My analysis of the Committee’s most recent announcement is bolded below.


The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

This has been the standard language since the onset of COVID-19. The FOMC is committed to providing whatever support it can to the economy through monetary policy.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer’s rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

This is a paragraph that looks in the rearview mirror, a progress report on everything that’s happened or not happened since the last Fed announcement. Economic activity continues to improve, and more people are getting vaccinated, which the Committee judges as a hopeful sign in trying to avoid the shock of a lockdown again.

Certain sectors like travel continue to be disproportionally impacted by the effects of the virus. A rise in cases in the summer didn’t help.

The Committee continues to see inflation as a temporary problem caused by the slow restart of the gears of industry after a lockdown while going further than it has recently to acknowledge the hit to Americans’ wallets in the form of steep price increases. Committee members continue to see the policy environment as helping support the credit environment for businesses and households.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain.

The fact that COVID-19 is playing such a role in these policy decisions isn’t new. What is new is that this is the second mention of either “supply constraints” or “supply and demand.” There’s a laser focus on inflation at the moment and bringing it back down to more normal levels.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage‑backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

This is the money paragraph both literally in terms of the number of dollar signs and the fact that this is the paragraph everyone most cares about and jumps to immediately. It’s also just a giant block of text, so I’m going to try to get this done in three or four paragraphs instead of one. OK, let’s tackle this beast.

The FOMC doesn’t want as much inflation as there is right now, but it does want some inflation. If consumers think that prices will go up, they’re more motivated to buy now rather than wait, which creates jobs. The Committee is OK with inflation up to 2% and even above that because it was low for a while. The current environment is a different matter.

Committee members kept the federal funds rate in a range between 0% – 0.25%. This was expected. Although there’s some talk of it, there seems to be no immediate appeal in raising short-term interest rates. Although consumers don’t see this particular rate, the rate at which banks borrow money from each other does have an impact on consumer rates for mortgages and credit down the line. Essentially, nothing new is good news.

Now to the policy change that’s been foreshadowed for a while. The Federal Reserve has been undertaking an expensive bond buying program since the beginning of the pandemic to make financing cheap for consumers. Importantly for the mortgage market, up to this moment, that’s included buying $40 billion per month in agency mortgage-backed securities.

One of the problems with continuously buying at that level is that once you’ve done that, if the economy sustains another blow, you’ve already used that tool. What officials are doing now is slowly backing off their purchases so that it’s an option in the future. At the same time, doing it in the controlled manner laid out above keeps interest rates from jumping up immediately.

There wasn’t major market movement after the announcement yesterday, so the increase was baked into current mortgage rates. The details of this announcement make it clear that the Fed intends no surprises. If you’re in the market for a mortgage, the bottom line is to try to take advantage of the current environment. I guess it was five paragraphs.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

This is a longer version of the paragraph in which the Committee talks about everything it looks at in making decisions including public health, conditions for business and the workforce as well as inflation and global economic impacts. Basically, they’re always willing to adjust based on what happens.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Committee members were in agreement.

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