The final quarter of 2021 is almost upon us in which its seen a rebound in economic growth compared to the declines seen for all of 2020 due to the pandemic induced shutdowns. The question now is, will the Fed pull back on its latest Quantitative Easing Program? The Fed is currently purchasing both Treasury and Mortgage-Backed-Securities in the amount of $120 billion-plus per month to increase the money supply and promote lending and investment.
The Fed has a dual mandate of promoting maximum employment and maintaining price stability. On the employment side of the mandate, the labor market recovery is uneven. Yes, the headline unemployment number fell to 5.4% in the August Jobs Report, but the Labor Force Participation Rate (LFPR) remains at stubbornly low levels. An uneven labor market could keep the Fed on hold.
On the inflation side, it has moved considerably higher from last year’s low levels, but recent readings have seen the monthly numbers decline. The Fed has been saying that high inflation will be transitory or short-lived, so seeing a retreat in prices would be another reason for the Fed not to taper just yet.
Home prices continue to rise annually in response to soaring lumber prices, commodity prices and scorching demand. This has caused housing affordability problems for many. One way many suggest cooling off the housing froth is for the Fed to taper their Mortgage-Backed-Security (MBS) purchases.
Bottom line: Whether or not the Fed begins to taper purchases, rates are just above historic lows and ripe for an application to either purchase or refinance.
Source: Mortgage Market Guide
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