Mortgage Rates Commentary: 12/12/12

Summary: the Federal Reserve announced that interest rates will stay low until the unemployment falls to 6.5%. They furtheris going to buy mortgage backed securities causing rates to remain low or possibly move a little lower. Upward pressure is not present at this time, although it is always best to remember we're dealing with the monetary markets and there are other international events that can trigger upward rates.

Fed sets jobless, inflation targets; to buy bonds

3:32 PM ET 12/12/12 | Marketwatch

WASHINGTON (MarketWatch) -- The Federal Reserve announced a new bond-buying program Wednesday in fresh action to keep the recovery going in the languishing jobs market and, in a surprise, set thresholds on unemployment and inflation before it will move to hike interest rates.

The new purchases of $45 billion of Treasurys are designed to keep the total pace of its asset purchases at $85 billion a month. Without the action, the Fed purchases would have been reduced at year-end when an existing program to swap short-term debt for longer-term Treasurys is set to expire. The Fed said it would keep the $45 billion pace "initially," suggesting it may review the size of the purchases.Read text of statement.

The Fed also kept its existing program to buy $40 billion a month in mortgage-backed securities. Peter Buchanan, economist at CIBC World Markets in Toronto, the Fed decision to bring total bond buys to $85 billion is "modestly constructive for fixed income and equities."

In a surprise, the Fed adopted thresholds on unemployment and inflation to guide the market on when it plans to hike the fed funds rate. The Fed had previously said it expected to keep its rates low until mid-2015.

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