Wednesday, September 18, 2013

The Latest Fed Action: Good News or Bad?

In the last five years, the Fed has almost single-handedly saved the U.S. housing market with its aggressive purchasing of mortgages. Mortgage rates were pounded to, and kept at, historical lows, an action which allowed pricing to stabilize. Mere speculation that the Fed might taper off its purchases was enough to send interest rates a full point higher.

Today, in a move that most analysts found surprising, the Fed announced that its purchasing program would continue. That's good news for buyers, because rates should stay low and may even drop a bit.

But overall, it may not be such good news. The only reason to have curtailed the program was a recovery in the housing market, which made Fed intervention less necessary. That the Fed Board elected to continue the programmay mean that Bernanke et al suspects the recovery is less robust than originally thought, and the housing market is either stalling or tipping downward.