Last Week in Review: Three Things the Fed Said
This past week, the Federal Reserve held their first meeting of 2021 and shared its thoughts on the economy, inflation, and interest rates.
Below are three important takeaways for the mortgage/housing world and overall economy:
1. "In terms of tapering, it's just premature."
Fed Chair Jerome Powell, in his press conference, essentially told the world they will continue to purchase $120B worth of Treasurys and mortgage-backed securities for the foreseeable future. This means relatively low mortgage rates throughout 2021.
2. "Frankly, we'd welcome higher inflation."
The Fed said inflation is not a problem now, and it would like to see higher inflation in the future. This gives the Fed cover to continue its asset purchase program described above for at least this year. However, if the Fed gets what it wants, higher inflation, it will be talking about "tapering" bond purchases and even hiking interest rates. Follow consumer inflation readings going forward, as they will be what the Fed watches to determine the need for future rate hikes and less bond buying.
3. "There's nothing more important to the economy right now than people getting vaccinated."
All of the stimulus to help revive and stimulate the economy doesn't do much if businesses can't open and people are not out and about. The initial vaccination process had issues, but the process has since ramped up around the country, and there are more vaccines on the way.
When you couple all of the stimulus from both the Fed and the government with economies reopening and the American spirit, we should expect strong economic growth later this year. At that time, we may start to see a concern with inflation and a need to "taper" bond purchases, as described above.
Bottom line: The Fed continues to support the housing industry by purchasing bonds, until they get what they want: higher inflation.
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