Surprise Fed Move Could Ease Mortgage Rates

Federal Reserve Chairman Ben Bernanke shocked the financial world Wednesday by announcing that the Fed would wait “a little longer” before tapering its $85 billion-a-month bond-purchasing program. The Fed says it wants to see more improvement in the economy before proceeding with a wind-down.

“It was a precautionary step,” Bernanke said at a news conference, adding that Fed policymakers have “decided to wait a little longer to make sure the economy is conforming to” their positive economic outlook. Bernanke noted that job growth has also fallen the past three months and “is far from what all of us would like to see.”

The Fed started its bond purchase program in 2008 in response to the financial crisis. The move has brought mortgage rates to record lows, providing a boost to the housing market.

However, the housing market’s recovery has recently showed some slight signs of slowing as mortgage rates tick up. Since the Fed first signaled in May that it may start slowing its bond-purchasing program, mortgage rates have jumped a full percentage point, rising from 3.51 percent to 4.57 percent for the 30-year fixed-rate mortgage.

Bernanke has said the Fed likely would begin to taper its bond-purchasing program this year and end it by mid-2014. But that relies on the economy and job market improving, he said.

“The general framework [for the tapering] is still the same,” Bernanke said. He added that the Fed likely would begin to pull back on the program “possibly late this year.”

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