Federal Reserve press release in plain English – September 2021


The Federal Reserve has not changed short-term interest rates, but it has made announcements on another front that could have ramifications for those looking at the current low mortgage rates and trying to decide when to move on. action.

As we get into the details below, the Fed is considering withdrawing its mortgage bond purchases. Because the Fed is a big player in this market, any time it pulls back, it’s okay to bet that rates will go up. In short, more demand for mortgage bonds means lower rates.

What should we take away from it? If you’re ready, in the short term, there won’t be a better time to buy or refinance. Do not hesitate to start your online application.

My comments are below in fat.

The Federal Reserve is committed to using its full range of tools to support the US economy during these difficult times, thereby promoting its maximum employment and price stability goals.

I feel like we’ve dealt with COVID-19 long enough for the Federal Reserve to play their biggest album every time I see this paragraph, but it’s nice to know that they are committed to supporting.

Thanks to progress in immunization and strong political support, economic activity and employment indicators continued to strengthen. The sectors most affected by the pandemic have improved in recent months, but the increase in COVID-19 cases has slowed their recovery. Inflation is high, largely reflecting transient factors. Overall financial conditions remain accommodative, partly reflecting policy measures aimed at supporting the economy and the flow of credit to US households and businesses.

The Committee is encouraged that people continue to be vaccinated. However, an increase in COVID-19 cases certainly threatens progress, so governors are watching it. Although there have been improvements, sectors like travel and hospitality are still struggling.

One thing the Fed has been focusing on recently is inflation. Although it is high, the Committee continued to use the term “transient factors”. Basically, this means that Fed governors still believe this is the result of difficulties in making certain sectors in the economy work despite the rebound in demand. It is considered temporary.

The trajectory of the economy continues to depend on the evolution of the virus. Advances in immunization are likely to continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.

This short paragraph acknowledges that COVID-19 is running the show and that everything the Fed does is a reaction to it. As long as the country has not passed this stage, it is difficult to give any outlook on the economy.

The Committee seeks to achieve a maximum employment and inflation rate of 2% in the longer term. As inflation has remained below this longer-term target, the Committee will aim to keep inflation slightly above 2% for a period of time, such that inflation averages 2% over time and that long-term inflation expectations remain firmly anchored at 2%. The Committee expects to maintain an accommodative monetary policy until these results are achieved. The Committee has decided to maintain the target range for the federal funds rate at 0 to 1/4 percent and expects it to be appropriate to maintain this target range until labor market conditions. have reached levels consistent with the Employment Committee’s maximum estimates and that inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for some time. Last December, the Committee said it would continue to increase its holdings of treasury securities by at least $ 80 billion per month and agency mortgage-backed securities by at least $ 40 billion. per month until further substantial progress has been made towards its maximum employment and price stability goals. Since then, the economy has progressed towards these goals. If progress continues overall as planned, the Committee believes that a moderation in the pace of asset purchases could soon be justified. These asset purchases help promote the smooth functioning of the market and supportive financial conditions, thus supporting the flow of credit to households and businesses.

Again, this is the longest and most important paragraph of this statement. I wish someone would tell the Fed to split it up a bit for easier reading, but here we are.

First, the Fed reiterates that the long-term objective is to have inflation around 2%. The idea is that it’s actually good to have moderate inflation as it encourages people to buy now rather than carry on with their money. This is the effect of creating jobs and further stimulating the economy.

The Fed is prepared to let inflation go above 2% for a while. Before the economy restarted after COVID-19, inflation was very low for a very long time. Thus, the governors chose not to move interest rates in the short term. While this doesn’t directly correlate with long-term rates for things like mortgages, they tend to follow a similar pattern.

More importantly, the Fed is starting to talk seriously about canceling its purchases of treasury bills and mortgage-backed securities (MBS). There are two categories of items that affect your interest rate. One is your personal financial factors like credit score and the size of your down payment.

The other factor to consider is the demand for MBS. When investors buy mortgage-backed securities in large volumes, rates can be lower because it doesn’t take a high yield to attract a buyer. While people generally think the economy is heading in the right direction, they tend to invest more in stocks than bonds because a higher return is offered.

The Fed is currently the biggest player in the MBS market. When they start to slowly exit the market, rates will more than likely rise as it is difficult to find a buyer or group of buyers to fill that volume. The buying started because housing is such a big pillar of the economy, but it all ends at some point.

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

The Fed always puts something at the end to talk about everything it looks at to make decisions. However, the most important thing and to take away is the continued emphasis on public health.

Jerome H. Powell, chairman, voted for monetary policy action; John C. Williams, vice-president; Thomas I. Barkin; Raphaël W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

All the officials agreed.

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