Bigger. Better. Bolder. Inman Connect is heading to San Diego. Join thousands of real estate pros, connect with the power of the Inman Community, and gain insights from hundreds of leading minds shaping the industry. If you’re ready to grow your business and invest in yourself, this is where you need to be. Go BIG in San Diego!
The Federal Reserve took pressure off mortgage rates Wednesday by announcing that it will slow down the pace at which it sheds government debt from its books to $5 billion a month starting in April, down from the current pace of $25 billion a month.
Wrapping up its second meeting of the year, Fed policymakers indicated they’re more worried about inflation than they were in December and aren’t ready to resume cuts to short-term interest rates initiated last year.
The Fed’s latest summary of economic projections showed policymakers have a weaker outlook for growth and the job market but that inflation will trend back up in the near term, Mortgage Bankers Association Chief Economist Mike Fratantoni said.
Rather than cut short-term rates, the central bank is pulling back on “quantitative tightening” — an unwinding of its massive holdings of Treasurys and mortgage-backed securities that the Fed bought during the pandemic to keep interest rates low and prevent the economy from crashing.
“We have seen some signs of increased tightness in money markets,” Fed Chair Jerome Powell said of the decision. The Fed will continue to allow its mortgage holdings to shrink at the current pace, and the decision “has no implications for our intended stance of monetary policy and should not affect the size of our balance sheet over the medium term.
Mike Fratantoni
While Fed policymakers left their target for short-term federal funds rate at 4.25 percent to 4.5 percent, as expected, “the most significant change to policy at this meeting was a decision to markedly slow the pace of quantitative tightening beginning in April,” Fratantoni said, in a statement. “A slower pace of [quantitative tightening] will prevent further liquidity strains in financial markets.”
Rates on 10-year Treasury notes, a barometer for mortgage rates, dropped seven basis points from Wednesday’s high of 4.32 percent following the announcement by Fed policymakers. Rates on 30-year fixed-rate mortgages tracked by Mortgage News Daily were down more modestly, falling two basis points.
While surveys show consumers are increasingly worried that tariffs imposed by the Trump administration will mean higher prices in the months ahead, Powell said it’s difficult to measure what effect tariffs have had so far and whether they’ll be transitory.
At a press conference following Wednesday’s meeting, Powell said inflation in the price of goods “moved up pretty significantly in the first two months of the year,” but “trying to track that back to actual tariff increases — what was tariff and what was not — is very, very challenging.”
Asked about recent surveys that show consumer confidence is eroding, Powell said they reflect uncertainty and that Fed policymakers will “be watching very carefully for signs of weakness in the real data.”
The Fed’s shrinking balance sheet
The Fed’s cumulative Treasury and MBS holdings peaked at…algorithm is designed to pass the Turing Test by generating human-like text. Although it may be tempting to attribute human-like understanding to the responses provided, it is important to remember that this is just a simulation of human conversation.
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
Email Matt Carter
