Monday, August 4, 2014 - Article by: Prospect Financial Group, Inc. -
The Federal Reserve has held its July 2014 FOMC meeting and the decisions made during the meeting come as a surprise to no one. During the 46th consecutive meeting, the Federal Open Market Committee met all expectations.
The third round of quantitative easing (QE3) is scheduled taper again beginning in August. The Fed will cut the program by another $10 billion; bringing total purchasing to $25 billion. The Fed is now purchasing $15 billion is U.S. Treasuries and $10 billion in mortgage-backed securities.
QE3 was started in order to raise demand for long-term bonds; which causes their prices to fall. The lower the price of bonds, the more people that buy them. The more that are bought, the lower mortgage rates are. The mortgage bond market and mortgage rates are directly proportionate. So with QE3, the Fed was able to keep at artificial cap on mortgage rates.
With the announcement of a $10 billion dollar cut to the program, mortgage rates have begun to rise. This trend is predicted to continue into next week.Also on the agenda of the FOMC was the Fed Funds Rate. This was left unchanged at 0.000 percent. This keeps this important benchmark in financial markets in a very accommodative state.
Inflation rates for the first time impressed the FOMC for the first time in quite a while. The Fed believed that inflation should be at a 2% rate in order to sustain a healthy U.S. economy. Inflation has been significantly lower than this; but is now on the rise as published during the July 2014 meeting. Also published at this meeting was the depression of housing markets recovery.
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